Edison, I think I may a have a workaround for you.
I am certainly not an expert at dealing with contours, but through recent experimentation and the availabilty of newer scripts this could be what you need.
You'll will need to check the accuracy of the "re-segmented" contours, however, to see if they are within the tolerances/lever of accuracy you want.
See the attached .skp for a mini-tutorial. You will need the Weld.rbby Rick Wilson and the BezierSpline script setby Fred06. If you plan to create a terrain from the contours, then I would suggest TIG's Hidden2Layer.rb (version 1.2) script and use it as mentioned here: http://www.sketchucation.com/forums/scf/viewtopic.php?f=57&t=8726 .
In summary, the procedure is this:
A. Import the contours.
B. Triple click on a contour of segments and WELD.
C. Then right click on it and choose the the BZ context option of PolyLine Divider. Do note that for some reason (I think it has to do with the number of segments), the BZ context options may not be available; in that situation then bisect the weld segments into smaller lengths (see the mini-tutorial, Step 2).
D. After completing Step 3, then you may want to weld the "segment-reduced" contour path back together into one continuous polyline.Screen Capture of BZ content menuMini-Tutorial for BZ method of segment reduction
UPDATE: If Weld.rb does not work on all segments of a contour, try a selecting a smaller set of segments. OR, try selecting a few contour elevations (use one of SU's side views to do this), copy and paste them into a new file (or create a component out of them and then do a context menu Save As to create separate .skp), then try to weld, etc., then repeat the process for another set of contours; finally paste these back into one file. Otherwise, have the segments simplified by the surveyor in AutoCad first, or have them subdivide the one DWG file into 4 or more subfiles.