A construction holdback is a statutory requirement in most Canadian provinces that the payer keep back 10 percent of every payment on a construction contract until the lien period expires. In Ontario the basic holdback is 10 percent held for 60 days after substantial completion; British Columbia and Alberta run similar 10 percent regimes tied to their lien windows. The holdback exists to protect owners and lenders from liens filed by unpaid subcontractors, not to protect the contractor being held back.
How it works in practice
On a $100,000 renovation with progress billing, the owner legally retains $10,000 across the payments. When the lien period runs out with no liens filed, the holdback releases. The mechanics matter:
- The holdback is mandatory on most construction contracts, whether or not the parties wrote it into the agreement
- It protects the payer: if a subcontractor liens the property, the owner's exposure is capped at the holdback they retained
- For the general contractor, it means the last 10 percent arrives 45 to 60 days after the job is done, at best
Why contractors feel it as pain
The holdback stacks on top of the final-draw problem. A contractor finishing a job waits for the final progress payment, then waits again for the statutory holdback, and both arrive only if the client is cooperative. When a client disputes the final invoice, the holdback becomes one more pot of money that needs chasing. Contractors in forums describe the combined effect bluntly: the tail end of every fixed-price job is financed by the contractor, interest-free, with collection risk on top.
The idea worth stealing from the holdback
Strip away who it protects and the holdback is a sound mechanism: money set aside in advance, released when defined conditions are met. The modern extension of that idea is funding the entire contract into a neutral regulated account at signing, with releases tied to approved milestones instead of lien-period calendars. The owner keeps the protection (funds only move when work is verified), and the contractor gains what the statutory holdback never gave them: certainty that the money exists and cannot be withheld on a whim after delivery.