Retainage vs Holdback

In Canadian construction contracting, retainage and holdback both describe money withheld from progress payments until the work is finished — but they are not interchangeable. "Holdback" is a defined statutory term in Canadian lien law, and its amount and release are set by provincial construction statutes, not by whatever the contract says.

What each term means

Retainage is the general contract practice of withholding part of each progress payment as security for completion. The percentage is whatever the parties negotiate, and the term shows up in contracts and prompt-payment rules across North America. Holdback is the statutory version: in Ontario's Construction Act, R.S.O. 1990, c. C.30, "holdback" is defined as the 10 per cent of the value of the services or materials supplied that Part IV of the Act requires to be withheld from payment.

The statutory 10% holdback

Ontario's Construction Act, s. 22(1), requires each payer on a contract or subcontract to retain a holdback equal to 10 per cent of the price of the services or materials as they are actually supplied, until all liens that may be claimed against the holdback have expired or been satisfied, discharged or otherwise provided for under the Act. Where the contract is certified or declared substantially performed but work remains, s. 22(2) requires a separate 10% holdback on the remaining services or materials. Similar lien regimes with mandatory holdbacks exist in other provinces under their own builders' lien and construction statutes — always check the statute of the province where the project sits.

Federal construction contracts

For work on federal real property, the Federal Prompt Payment for Construction Work Act (S.C. 2019, c. 29, s. 387), in force December 9, 2023, lets payments be subject to a holdback provided for by the contract — but s. 12 caps the holdback at the amount that would apply under the construction law of the province where the project is located, and requires it to be paid no later than that provincial law would require. The Act also sets the payment clock: Canada must pay a proper invoice within 28 calendar days, and the contractor then has 7 days to pay its subcontractors, each of whom has 7 days down the chain.

Common questions

Can a contract waive the holdback?

No. Where a lien act applies, the statutory holdback is mandatory and its timing is set by statute. A contract can add protections, but the lien-law holdback is the floor — which is exactly why the federal prompt payment act measures its cap against provincial law.

Which term should I use in a bid or contract?

Use "holdback" in Canadian construction documents. It matches the statutory language of the lien acts, and a defined statutory term carries the Act's release rules with it, while a generic "retainage" clause leaves more room for argument.

Related definitions

Progressive bidding · Change order · Tender notice