Holdback in the context of contract law refers to a requirement in some contracts under which an owner engaging a contractor must hold a particular percentage of payment for a stipulated length of time in order to ensure all parties working on a contract are paid. The amount of holdback, typically a percentage of the contract price, and time of holdback varies by contract and jurisdiction.
The following is an example of a contract clause dealing with holdback:
(a) Ten percent (10%) of the total invoiced amount will be deducted from each of Contractor’s payments, as specified in this Rider A, as a holdback. Interest will be paid on the holdback amount at the Pooled Money Investment Account rate from the point of holdback until final holdback payment is released. No holdback will be made on pass-through payments for hardware and software other than the application software product developed or modified for this project.
(b) Payment of the total holdback amount will occur in four equal payments scheduled in three-month increments and will begin no later than 180 days after Final System Acceptance.
(c) Contractor will provide an invoice for twenty-five percent (25%) of the total amount held in the holdback fund. CalPERS will, when making the payment, itemize the holdback amount and any interest accumulated on that amount during the holdback period.
(1) If, during the 180-day period CalPERS identifies additional defects with the components delivered and accepted by CalPERS, the holdback payments will not commence until all defects have been resolved by the Contractor and accepted by CalPERS.
(2) If holdback payments have already begun, they will be stopped and Contractor will be provided written notification from CalPERS. Holdback payments will not commence until all defects have been resolved by Contractor and accepted by CalPERS.