Holdback Requirements Under Ontario’s Construction Act

Holdback is money an owner is required to retain from payments otherwise owed to a contractor under a construction contract. Ontario’s Construction Act sets the amount at 10% of the value of services or materials supplied, calculated before HST, and the requirement applies on most projects regardless of what the contract between the parties says.

In practice, this means that if a contractor invoices $100,000 for work completed to date, the owner is generally required to pay out only $90,000 at that time, retaining $10,000 as holdback. The same 10% retention applies again as the contractor (or subcontractor) makes its own payments further down the chain, so holdback accumulates at every level of the contract structure, not just at the top.

Holdback is calculated on the value of services and materials actually supplied, not on the full original contract price if the scope has changed. Where change orders increase or decrease the contract price, the holdback calculation generally follows the updated value of work actually performed, which is one more reason accurate, up-to-date invoicing matters on an active project.

The purpose of holdback is closely tied to construction lien rights. Because subcontractors, suppliers, and workers can register a lien against a property if they aren’t paid for work or materials they supplied, the Construction Act requires owners to keep a portion of each payment in reserve, specifically so there’s a known fund available to satisfy lien claims if they arise.

Without a holdback requirement, an owner could pay a general contractor in full, the general contractor could fail to pay its subcontractors, and those subcontractors would have far less practical ability to recover what they’re owed — even though they have lien rights in theory. Holdback is meant to make sure a meaningful fund actually exists for that purpose, rather than leaving lien rights as a right without a reliable source of money behind them.

Holdback also indirectly supports Ontario’s prompt payment regime, since the Construction Act’s overall structure assumes that payment flows down the contract chain reasonably quickly, with holdback as the backstop for the portion that’s deliberately retained rather than a reason to withhold payment more broadly than the statute allows.

Basic holdback is the general 10% retained against the overall contract price, tied to the standard lien period that runs from the relevant triggering event for the project as a whole, such as the publication of a certificate of substantial performance.

Finishing holdback is a related but distinct concept that can apply once a defined portion of the contract — sometimes called a phase, or the remaining work after substantial performance — is itself completed. Finishing holdback allows the holdback tied specifically to that finishing work to be assessed and potentially released on its own timeline, rather than being bundled automatically with the basic holdback for the rest of the project. The distinction matters mainly on larger projects where different parts of the work reach completion at meaningfully different times.

On a smaller residential project, basic and finishing holdback often end up being released close together, since the whole job reaches substantial performance at roughly the same time. On larger commercial or multi-phase projects, tracking the two separately can matter a great deal, since it affects when funds tied to an earlier, completed phase actually become available rather than staying tied up until the whole project wraps up.

Holdback doesn’t simply become payable on a fixed date written into the contract — it generally becomes releasable once the applicable lien period has expired without a lien being preserved, or once any liens that were registered have been resolved. Because lien periods are generally tied to events like last supply of services or materials, or publication of a certificate of substantial performance, the release of holdback is tied to the same triggering events as the lien deadlines themselves.

This connection to lien deadlines is deliberate rather than incidental. If holdback could be released before the lien period runs out, a lien claimant could end up with a valid, perfected lien but no fund left for it to actually reach, which would defeat much of the point of requiring holdback in the first place. Linking the two timelines keeps the security meaningful for as long as a lien could still be validly brought.

In practice, this means an owner (or a contractor holding back from a subcontractor) generally needs to track the same dates relevant to lien preservation before releasing holdback, since paying it out too early — while a lien could still be validly preserved — can create personal liability.

On larger projects, a payment certifier such as an architect or engineer named in the contract often confirms the relevant dates and amounts before holdback is released, adding a layer of verification on top of the owner’s own records. On smaller residential jobs without a formal certifier, the owner and contractor are generally left to track these dates themselves, which makes keeping a clear paper trail of invoices, payments, and key project milestones especially useful.

Holding back 10% of the full contract price for the entire duration of a large, multi-year project can tie up significant funds for a long time. The Construction Act addresses this by allowing certain large projects to use annual or phased release of holdback, so that holdback accumulated during an earlier period of the work can be assessed and released without waiting for the entire project to reach completion.

These mechanisms come with their own specific conditions, notice requirements, and publication steps, and they don’t apply automatically — they generally need to be set up and followed correctly to be effective. Owners and contractors on long-running projects often build these release points into the project schedule from the outset, rather than deciding partway through that phased release would be convenient.

Whether phased release is worthwhile on a given project usually comes down to the size of the contract and how long it runs. On a project lasting many months or years, the cost of tying up a growing holdback balance for the full duration can be significant, which is part of why the Construction Act built in a way to release some of it earlier rather than requiring every dollar to wait for final completion across the whole contract.

Mishandling holdback is one of the more common and costly mistakes made on Ontario construction projects. Releasing holdback before the applicable lien period has expired, miscalculating the 10% amount, or failing to retain holdback at all can expose an owner to paying twice — once to the general contractor, and again to an unpaid subcontractor or supplier who still has valid lien rights against the property.

Holdback questions often surface alongside broader disputes about payment timing, which is also addressed by the Construction Act’s prompt payment rules, and alongside lien claims themselves. For a general overview of what a construction contract should address, including holdback, see our article on key contract terms, or visit the construction insights hub for more. This is general information about how holdback generally works under Ontario law, not a calculation of what should be held back on any specific project.