Can contract manufacturer exclude validation from their scope?

Validation must be provided for all processes where the resulting output cannot be or is not verified by subsequent monitoring or measurement. Validation can be excluded from the scope, but not from the processes. However, if it is your contract manufacturing, you are responsible for validation of that process so the validation process can be under your jurisdiction. 

For more information, please see the following articles:

• Using ISO 13485 to manage process validation in the medical device manufacturing industry https://advisera.com/13485academy/blog/2017/09/07/using-iso-13485-to-manage-process-validation-in-the-medical-device-manufacturing-industry/
• Production and service provision process in ISO 13485 https://advisera.com/13485academy/blog/2017/12/13/production-and-service-provision-process-in-iso-13485/

This answer/blog is for process/manufacturing.  Can they take exclusion to section 7.3.7  Design and development validation?  If it is not included here then how is this done?

No, exclusion 7.3.7 Design and development validation is not possible since it is a strict requirement from the standard. They have to have documented validation plans and all other arrangments. However, this can be outsourced to some other company or laboratory, but then this should be explained as such.