If a subcontractor submits a payment application including a CE, which hasn’t formally been agreed, and the payment notice is over due, is the Subcontractor entitled to full payment of that CE?
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When you say the payment notice is over due I presume you are referring to the payment notice to be issued by the contractor.
In that case, and if the subcontract requires him to submit an application, the subcontractor’s application will be become the notified sum (by default) and is payable.
To safeguard yourself I suggest that you issue a Pay Less Notice and ensure it is a compliant notice ie given in time etc.
It depends which option they are working on as to whether they are entitled to be paid at that point. If it is option A, then you pay them for completed items on the activity schedule, and a CE does not make the activity schedule until it is implemented. However. if it is not implemented because you have slowed down the agreement you MAY choose to “pay them on account” for the proportion of the quote you agree if they have done the works (but no obligation to do so).
If it is option C, then they are paid actual Defined Cost, so will get paid anything they can prove they have spent, so the fact the CE is not implemented is irrelevant in terms of how much they get paid (they will just be unsure of liability as to how much the target moves by).