The Contractor is obliged to notify within eight weeks etc and basically follow the contract. Strictly speaking, if they do not, then they become time barred from having the Prices raised. However, under option E this is irrelevant as it is a cost reimbursable contract and they get paid what they pay there Subcontractors in accordance with their subcontracts. I.e. the purpose of the Prices under option E becomes purely a figure for forecasting as, quoting clause E 11.2 (32) “The Prices are Defined Cost + Fee” The circumstances you describe do NOT mean the CE is Disallowed Cost for the Contractor either.
In answer to your second question “what substantiation should a sub-contractor provide to a CEQ if they are working on a fixed price basis” the answer depends on what form you are under. Assuming it is the full ECC (as opposed to the short form) then it would be broken down in sufficient detail to justify each of the sub-headings in the Shorter Schedule of Cost Components.