Maybe I'm confused here, but to me C2 would be insane to enter into this agreement.
The contract for those C2 items would be between the government and C2, in accordance with the terms and conditions of C2's K. Heartburn, thinking of the risk to C2 should C1 not make delivery at all/on time, not support the product in accordance with C2's terms, etc.
I'm fairly certain the IG wouldn't like this arrangement, and is it could be used to circumvent the Price Reductions Clause.