Does Subcontractor get paid as per the activity schedule in the subcontract and doesn’t need to produce his cost backups on monthly or periodically?
No - with option C the Subcontractor will be paid their Defined Cost which is all the cost they can prove they have spent in line with the schedule of cost components. Option C is fully open book. The activity schedule was only used to get the Subcontractor to their target (Prices).
After contract award the activity schedule serves little purpose, as it is not even used to assess compensation events as rates are only used if both parties agree (and on a case by case basis).
Option A is where the Subcontractor would be paid for completed items on their activity schedule.