Legal Definitions - holdback

A holdback refers to a portion of money that is intentionally kept back from a larger payment due under a contract. This amount is not paid until the other party has fully satisfied specific conditions or completed certain obligations outlined in the agreement. It serves as a financial incentive for the performing party to complete their work or meet their commitments, and as a form of security for the paying party, ensuring the agreed-upon tasks are finished to standard.

• Example 1: Home Renovation Project

  A homeowner hires a contractor to remodel their kitchen for a total cost of $50,000. The contract specifies that the homeowner will pay 90% ($45,000) upon substantial completion of the work, but will hold back the remaining 10% ($5,000) until all final inspections pass, minor touch-ups are done, and all construction debris is removed from the property. This $5,000 is the holdback. It provides the contractor with an incentive to address every detail and ensures the homeowner has leverage to get the job perfectly finished before releasing the final payment.

• Example 2: Custom Software Development

  A startup commissions a software development firm to build a new mobile application for $100,000. The contract states that 85% will be paid in milestone installments as development progresses, but the final 15% ($15,000) will be held back until the app successfully passes a 30-day user acceptance testing period, all critical bugs are resolved, and the complete source code is delivered. The $15,000 represents the holdback. It provides the startup with assurance that the software will be fully functional and bug-free before they release the entire payment, and it incentivizes the development firm to deliver a high-quality, stable product.

• Example 3: Event Planning Services

  A company hires an event planner to organize its annual corporate gala for a total fee of $25,000. The agreement stipulates that 80% ($20,000) will be paid before the event takes place, and the remaining 20% ($5,000) will be held back until after the event, once all vendor invoices are reconciled, a post-event report is submitted, and attendee feedback is reviewed. This $5,000 is the holdback. It ensures the event planner completes all post-event administrative tasks and provides a comprehensive wrap-up, giving the company confidence that all aspects of the service, including follow-through, will be completed to their satisfaction.