What Does “Holdback” Mean in a Contract?
A portion of payment withheld until certain conditions are satisfied, such as completion of work or resolution of potential claims.
Detailed Explanation
Holdbacks manage risk by keeping a percentage of payment in reserve. In construction, 10% retainage is held until punch list completion. In acquisitions, holdbacks cover potential indemnification claims discovered after closing.
Holdbacks shift risk to the party waiting for payment. Extended holdback periods or vague release conditions can create cash flow problems and disputes.
Example in a Contract
“Client shall retain 10% of each invoice as holdback, to be released upon final acceptance of all deliverables. If disputes arise, holdback may be retained until resolution.”
Why It Matters
Holdbacks reduce your immediate payment and create uncertainty about final amounts. Negotiate clear release conditions, reasonable time periods, and limits on what can justify continued holding.
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