If a prime contractor has a cost plus award fee contract and some of their employees comitted fraud (submitted false documents) which resulted in losses to the prime, is that loss reimbursable by the government?

So you are saying that some of the prime's own employees committed wrongful acts and, as a result, the prime suffered a financial loss? How is that loss a cost to the government? A cost-plus-award-fee contract is one in which the government will reimburse actual, allowable costs. You need to incur a cost, not record a loss, in order to get reimbursed.

And even if the "loss" was somehow a cost (debit to an expense account) it would be unallowable per 31.205-15(. So you wouldn't get reimbursed in any possible case.

However, the company may have legal recourse against the employees.

Hope this helps.