Defined cost is the amount of payment due to subcon for work which is subcontracted. The definition of work is anything that involves mental or physical effort to achieve a purpose. In the SoCC, it was stated that payments of performance bond is only for the Contractor.
Under option D any efficiency the Contractor can make will benefit both the Contractor and the Employer in terms of pain/gain (depending on the split. Therefore the Contractor should let subcontracts the most efficient way balancing risk that they can. As an Employer you can be more or less involved in any decision process as you see fit (or that you stipulated in Works Information). Obviously in your contract you are only talking about X13(performance bond) in relation between you and your Contractor.
Only costs you can not pay the Contractor would be those defined as a Disallowed Cost in your contract. I do not see that it would fit one of those reasons (unless you have amendments) so if not it should be payable.