Subcontracting with Escrow Accounts: Government Contracts

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This discussion explores the feasibility of using an escrow account for subcontracting on a government contract, based on an MOU between the main contractor and subcontractor. It clarifies that such an arrangement is possible if the main contract allows subcontracting, even without direct client approval. However, if the contract explicitly prohibits subcontracting, an escrow account cannot be set up without the client's knowledge and consent.

Renjith.R.s.

Renjith.R.s. (Querist)

30 April 2021 Suppose a contractor is getting a direct contract from govt. entity. He wants to give it on sub-contract to a third party by based on MOU between the main contractor and sub-contractor.

Whether as per MOU an escrow account can open for the main contractor and sub-contractor for the said contract. Bankers should make to payments to the sub-contractor based on the share mentioned in MOU.

Whether this mode is possible.
Note- Client is not part of this Escrow mechanism

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 May 2021 Yes, this is possible if the bankers agree for such transfer.

Renjith.R.s.

Renjith.R.s. (Querist)

01 May 2021 Thanks, Is it possible, if as per contract clause sub contracting is not allowed. Client is government.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 May 2021 In such a case sub contracting is not possible.

Renjith.R.s.

Renjith.R.s. (Querist)

01 May 2021 Thanks for reply. We can summarize as follows 1) If contract clause allows sub contracting, main contractor and sub contractor can open Escrow account with bank even without Approval of client. 2) If contract clause doesn't allows sub contract can't open ESCROW account even without client knowledge. Hope my understanding is correct.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 May 2021 Yes, your understanding is right.

Renjith.R.s.

Renjith.R.s. (Querist)

01 May 2021 Thanks a lot sir......

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

01 May 2021 You are welcome.. .....

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