Statutory holdback or contract holdback is the legal requirement found in most common law jurisdictions'

contract law A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...

that requires an owner engaging a contractor to hold a particular percentage of payment for a stipulated length of time. This is done to ensure that any and all parties working on a contract are paid. Any subcontractors who have worked on the project are entitled to payment based on

quantum meruit ''Quantum meruit'' is a Latin phrase meaning "what one has earned". In the context of contract law, it means something along the lines of "reasonable value of services". In the United States, the elements of ''quantum meruit'' are determined by ...

, and the courts will allow a

lien A lien ( or ) is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the ''lienee'' and the per ...

against any property which their work has improved, should they not receive payment. In order to expedite and simplify the overall process, holdbacks can be claimed against by any subcontractors who are denied payment by the contractor who employed them on the project. Under these conditions, the subcontractor may collect payment from the owner, who then reduces his final payment (i.e. when releasing what remains of the holdback) to the contractor. Note that the subcontractor is entitled to payment based on

, irrespective of whether or not the subcontractor has

privity of contract The doctrine of privity of contract is a common law principle which provides that a contract cannot confer rights or impose obligations upon any person who is not a party to the contract. The premise is that only parties to contracts should be ab ...

with the owner. In some jurisdictions, there are two or more holdbacks. For example,

Ontario Ontario ( ; ) is one of the thirteen provinces and territories of Canada.Ontario is located in the geographic eastern half of Canada, but it has historically and politically been considered to be part of Central Canada. Located in Central C ...

Canada Canada is a country in North America. Its ten provinces and three territories extend from the Atlantic Ocean to the Pacific Ocean and northward into the Arctic Ocean, covering over , making it the world's second-largest country by tot ...

or the

British Columbia British Columbia (commonly abbreviated as BC) is the westernmost province of Canada, situated between the Pacific Ocean and the Rocky Mountains. It has a diverse geography, with rugged landscapes that include rocky coastlines, sandy beaches, ...

Builders Lien ActStatutory holdback: British Columbia Builder Lein Act
Retrieved 2016-05-25 employs both a basic and a finishing holdback. The basic holdback is 10% of the total project cost, and is released after 45 days from substantial completion of a project. The finishing holdback is 10% of the value of work still left to be completed after substantial completion of the project, and is released only after 45 days from completion of the project.

References

Contract law {{Law-stub

See also

References