Yes, that is what FAR 52.246-5(d) states, the cost of the rework is allowable and can be vouchered for IAW FAR 52.216-7 Allowable Cost and Payment. Also correct is that they would not get fee associated with the rework. If this is a trend, depending on how your Award Fee Plan is written, they may lose fee.

Caution: you state "apparent poor quality". Make sure the COR is being completely objective and documenting where and how the reports do not meet quality requirements.