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Simple English definitions for legal terms
holdback
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A quick definition of holdback:
Term: HOLDBACK
Definition: A holdback is when a part of the payment for a job is kept back until the job is completely finished. This is done to make sure that the person doing the job finishes it properly. The rules for the holdback are written in the contract. It helps the person paying to feel secure that the job will be done right, and it gives the person doing the job a reason to finish it on time.
A more thorough explanation:
Definition: Holdback is an amount of money that is kept back from the full payment of a contract until the other party completes some obligation. This is usually done to ensure that a contractor finishes the work agreed upon beforehand. The terms of a holdback are typically expressed in the contract. The holdback gives the contractor an incentive to finish the work, and the other party security that the work will be completed.
Example 1: A homeowner hires a contractor to renovate their kitchen. The contract states that 10% of the total payment will be held back until the contractor completes all the work. This ensures that the contractor finishes the job as agreed upon and to the homeowner's satisfaction.
Example 2: A company hires a software developer to create a new program. The contract states that 20% of the total payment will be held back until the developer fixes any bugs or issues that arise within the first month of the program's release. This ensures that the developer creates a high-quality program that works properly.
These examples illustrate how holdbacks work in contracts. By withholding a portion of the payment until the work is completed or meets certain standards, the other party has a guarantee that the work will be done properly. This also gives the contractor or developer an incentive to complete the work to the best of their ability.