Holdback Bonds
Every construction contract leaves ten per cent of your money sitting with the owner, sometimes for years. A holdback bond is the instrument that lets the owner release it early and keep a secured position — but it is prescribed in only two Canadian jurisdictions, and it protects the owner rather than the trades.
What Is a Holdback Bond?
Lien legislation requires the party paying for the work — usually the owner — to hold back a percentage of every certified payment. That retained fund is the security subcontractors and suppliers look to if they are not paid. It is released once the lien period has run and no claims remain outstanding.
A holdback bond substitutes a surety’s promise for that retained cash. The owner pays the contractor the full certified amount instead of ninety per cent, and holds the bond in place of the money. If liens against the holdback have not expired or been satisfied by the end of the lien period, the owner makes a written demand on the surety for the amount it needs to meet its holdback obligations.
Three points decide whether this product fits your project:
- It secures the owner, not the trades. The owner is the only obligee. A subcontractor with a preserved lien has no claim on the bond — its rights still run against the owner’s holdback obligation and against the land
- It is deliberately demand-worded. Unlike a performance or payment bond, the surety cannot dispute the validity of the liens or the amount claimed. The owner certifies, the surety pays, and the arguing happens afterwards
- The contractor buys it; the owner has to accept it. The contractor is the party wanting its cash early, so it procures and pays for the bond — but the owner must be willing to take paper instead of money
That last point explains why uptake has been modest. Trading cash in hand for a paper obligation is, from most owners’ perspective, a downgrade in the quality of their security, and it puts an administrative deadline on their desk that did not exist before. The case for accepting one is strongest where the owner is already comfortable with the contractor’s surety, or where releasing the money buys something worth having in the negotiation.
The Money in Question
How Much Holdback, and for How Long
Before deciding whether a holdback bond is worth arranging, it helps to know exactly what is being held and when it would come back on its own. The percentage and the retention period are both set by provincial statute, and Atlantic Canada is not uniform.
On a two-year project the difference between getting that money on each draw and waiting for the lien clock to run is most of a working-capital cycle.
Nova Scotia
Builders’ Lien Act, s.13. Ten per cent of the value of the work, services and materials, held for sixty days after substantial performance. A separate ten per cent applies to the price of work remaining after that point, held sixty days after total completion. Interest runs at prime plus two per cent if the holdback is still unpaid sixty-five days after substantial performance.
New Brunswick
Construction Remedies Act, s.34. Ten per cent of the contract price, released sixty days from the signing of the certificate of substantial performance. On Crown work supported by both performance and payment bonds the holdback drops to five per cent — which correspondingly halves the size of any holdback bond required.
Prince Edward Island
Mechanics’ Lien Act, s.14. The only Atlantic province with a sliding scale: twenty per cent where the contract price is fifteen thousand dollars or less, and fifteen per cent above that. Held for sixty days after completion or abandonment of the contract.
Newfoundland and Labrador
Mechanics’ Lien Act, s.12. Ten per cent of the value of the work and materials, held for thirty days after completion or abandonment — the shortest retention period in the region, matching the province’s thirty-day lien registration window.
Ontario, for Comparison
Construction Act, s.22. Ten per cent of the price of the services or materials, retained until all liens that may be claimed against the holdback have expired or been satisfied — now subject to mandatory annual release, which changed on 1 January 2026.
What Actually Releases It
In every case two things must happen: the statutory period has to run, and no lien claims can remain outstanding. A preserved lien stops the clock in practical terms, which is why early-release mechanisms are always conditional on the absence of subsisting claims.
Percentages, retention periods and procedure are set by statute and change from time to time. This page is general information rather than legal advice — confirm the figures with counsel on a live file.
Where It Is Recognised
Only Two Jurisdictions Prescribe the Form
This is the point most discussions of holdback bonds skip. A prescribed form means the statute itself says the owner may hold the bond instead of the money, and the retention obligation is treated as satisfied. Only Ontario and New Brunswick go that far. Everywhere else the arrangement is purely contractual, which changes what the owner is actually holding.
Ontario — Form 5
The Construction Act, s.22(4), lets the owner retain holdback as cash, an irrevocable letter of credit in Form 4, or a demand-worded holdback repayment bond in Form 5. The penal sum is ten per cent of the original contract price as adjusted, and the owner’s demand must reach the surety within one hundred and twenty calendar days of the last date a lien could have been preserved.
New Brunswick — Form 6
The Construction Remedies Act, s.39, permits a letter of credit or a holdback release bond in the prescribed form. Regulation 2021-81 makes that Form 6. Watch the numbering: in New Brunswick, Form 5 is the letter of credit and Form 6 is the bond, which is the reverse of the Ontario numbering.
Nova Scotia — Not Prescribed
The Builders’ Lien Act contains no provision allowing a bond, letter of credit or other security to be substituted for the statutory holdback, and the regulations prescribe no bond form. A holdback bond in Nova Scotia is a private contract between owner and contractor on the surety’s own wording.
PEI and Newfoundland
Neither statute provides for substitution, and neither set of prescribed forms includes a bond. The forms in both provinces deal with claims of lien, wage claims, verifying affidavits and notices of trial. As in Nova Scotia, any holdback bond is a contractual arrangement only.
What That Means for an Owner
Where the statute recognises the instrument, releasing holdback against a holdback bond satisfies the retention obligation. Where it does not, an owner who pays out the full amount has not met its statutory duty and remains exposed to lien claimants for the whole of the holdback, with only a contractual claim against the surety to fall back on.
No CCDC or National Form
CCDC publishes three bond forms — bid, performance, and labour and material payment — and no holdback bond. The Surety Association of Canada does not publish one of its own either, though it co-drafted Ontario’s Form 5 with the province and hosts the fillable version.
For Contractors
What Releasing the Holdback Is Worth
Ten Per Cent of Every Draw
On most projects the holdback is the single largest sum you have earned and cannot use. Releasing it as it is certified, rather than months after substantial performance, changes the shape of the whole job’s cash flow.
Working Capital Drives Your Capacity
Working capital and the current ratio are the two figures a surety weighs most heavily when setting your bonding limits. Money released from holdback sits on the right side of both, which compounds into more capacity for the next project.
Your Bank Line Stays Free
A letter of credit posted for the same purpose ties up your operating facility, usually against cash margin. A surety instrument does not touch the bank line at all, which is the practical reason contractors ask for a holdback bond rather than a letter of credit.
For Owners
What You Keep, and What You Give Up
A Funded Position Without the Ledger
You hold a ten per cent security position without administering a holdback account or reconciling retention across a long project. Where the statute recognises the instrument, your retention obligation is treated as met.
Payment on Demand, Not on Argument
The holdback bond is the one surety product deliberately written to pay on demand. Two of your officers certify that liens against the holdback subsist and state the amount, and the surety is barred from disputing validity or quantum.
One Date You Cannot Miss
Both prescribed forms require the demand to reach the surety within one hundred and twenty calendar days of the last date a lien could have been preserved. Miss that window and the security is gone, whatever the merits.
The Three Options
Bond, Letter of Credit, or Leave the Cash
A holdback bond is one of three ways to solve the same problem, and every route gets to the same place for the contractor. What differs between a holdback bond and the alternatives is who carries the cost of holding the security, and how quickly the owner can turn it into money if something goes wrong.
Holdback Bond
- The full certified amount is paid as the work is billed, so the ten per cent never leaves your control
- No bank facility is used and, in the ordinary course, no cash margin is posted
- Runs off the lien period rather than a fixed calendar term, so there is no renewal to chase
- Recognised by statute in Ontario and New Brunswick; contractual only elsewhere
Letter of Credit
- Releases the same cash, but the facility behind it usually requires full cash margin or equivalent use of your credit line
- Carries a fixed term, commonly a year, with renewal at the bank’s discretion and an expiry date to diarise
- The bank assesses financial statements; it does not assess how you have performed on similar work
- Prescribed in Ontario as Form 4 and in New Brunswick as Form 5
Leaving the Holdback in Place
- No premium, no fee and no instrument to administer — the owner simply keeps the money
- The ten per cent is unavailable for the whole of the job and the lien period that follows it
- On a multi-year project the carrying cost of that capital is the largest hidden number in the contract
- The only statutorily supported option in Nova Scotia, Prince Edward Island and Newfoundland
One correction to the usual comparison. Brokers routinely say that bonds respond on proof of default while letters of credit pay on demand. The holdback bond is the exception: both prescribed forms are deliberately demand-worded, and in New Brunswick the owner’s demand is expressly conclusive evidence that a default has occurred. If you are weighing the two instruments, that particular distinction is not one of them.
Changed 1 January 2026
Ontario’s Mandatory Annual Holdback Release
If you bid work in Ontario, this is the most significant change to construction payment law in the country right now, and it cuts both ways. Annual release of holdback used to be optional, available only on contracts over ten million dollars where the contract expressly provided for it. As of 1 January 2026 it is mandatory, with no minimum contract value at all.
What Replaced What
Sections 26.1, 26.2 and 27.1 are repealed. Annual release now runs under s.26 for every contract, and the notice of non-payment route that let an owner refuse has gone with them. Holdback must be paid annually without deduction, set-off or withholding.
The New Procedure
The owner publishes a Notice of Annual Release of Holdback within fourteen days after each contract anniversary, stating the amount and the payment date, and pays not earlier than sixty and not later than seventy-four days after publication. Contractors pass the money down within fourteen days of receiving it, and so on down the chain.
The One Condition
Payment is withheld only where a lien has been preserved or perfected in the intervening period, or the contract has been terminated. Once the impediment clears, payment follows within fourteen days. There is no general right to hold back for deficiencies or set-off any more.
Lien Rights Did Not Change
This is the part that matters most. Bill 216 originally proposed tying lien expiry to annual release, and Bill 60 removed that. Lien deadlines still run off the s.31 milestones. So an owner now pays holdback out every year while remaining exposed to liens that have not expired.
Why That Strengthens the Case
An owner paying out annually without set-off, and without the protection that lien expiry would have given, has given up a security position it used to hold in cash. A holdback bond restores it. The bond’s value to owners has arguably gone up at exactly the moment the contractor’s need for it on long jobs has gone down.
Watch the Transition
For contracts made on or after 1 January 2026 the first release falls at the first anniversary. For contracts made before that date, the first release is at the second anniversary falling after 1 January 2026, and it sweeps up all accrued holdback to that point — a single very large payment worth planning liquidity for now.
No equivalent regime exists anywhere in Atlantic Canada. New Brunswick permits annual and phased release under ss.49 and 50 of the Construction Remedies Act, but only where the contract price exceeds ten million dollars, the contract expressly provides for it, and no lien claims subsist. Nova Scotia, Prince Edward Island and Newfoundland have no annual or phased release at all.
Nova Scotia
The One Early-Release Route Nova Scotia Has
Nova Scotia has no annual release, no phased release, and no prescribed holdback bond. What it does have, in ss.13A and 13B of the Builders’ Lien Act, is a certification route that lets the holdback attributable to a completed subcontract be released ahead of the rest.
How the Subcontract Route Works
- The subcontract has to be complete, and completion is certified rather than simply asserted
- Sixty days then run, matching the ordinary holdback period for that portion of the work
- No lien claims arising from that subcontract can remain outstanding at the end of the period
- The holdback attributable to that subcontract — and only that portion — is then released
What It Does Not Do
- It does not release holdback on the balance of the project, which still waits for substantial performance
- It is not an annual or phased release regime; there is no anniversary and no automatic entitlement
- It does not create a statutory basis for substituting a bond for the money
- It depends on someone actually certifying completion at the right time, which is where it usually falls down
For a trade that finished its scope in month four of a thirty-month project, this is the difference between being paid in year one and being paid in year three. It is underused, largely because it requires the owner and the consultant to do something at a point in the project when nobody is thinking about it. If your scope completes early, ask for the certification rather than waiting to be offered it.
Avoid These
Common Holdback Bond Pitfalls
Holdback bonds go wrong in a small number of predictable ways, and almost all of them are settled at contract stage rather than at claim stage.
The instrument itself is simple. What trips people up is the paperwork around it — the wrong form, a contract that does not permit the release in the first place, or a diary date nobody entered.
The Contract Does Not Permit It
Ontario’s Form 5 requires the underlying contract to contain a provision letting the owner pay the contractor without retaining holdback. Standard CCDC wording does not do that on its own. Fix the contract with a supplementary condition before ordering the bond, not after.
Reaching for the Wrong Form
In Ontario the holdback bond is Form 5 and the letter of credit is Form 4. In New Brunswick it is the other way round: Form 5 is the letter of credit and Form 6 is the holdback release bond. A non-conforming instrument may not discharge the retention obligation at all.
Missing the Demand Window
Both prescribed forms require the owner’s demand to reach the surety within one hundred and twenty calendar days of the last date a lien could have been preserved. That date is keyed to substantial performance, not to project close-out and not to any annual release cycle. Diarise it at award.
Releasing Into a Preserved Lien
Every early-release mechanism is conditional on no lien claims subsisting. Paying out where a lien has already been preserved leaves the owner exposed directly, and in Ontario the mandatory annual release is expressly suspended in that situation.
Sizing Against the Original Price
The penal sum is a percentage of the original contract price as adjusted. On a job carrying substantial approved changes, a bond that was correctly sized at award can be materially short by completion if the adjustment mechanism is not actually operating.
Committing Before the Surety Has
Do not agree in a tender or a contract to provide a holdback bond before confirming your surety will issue one, on what terms, and whether it consumes capacity within your existing facility. That conversation belongs before the commitment, not after it.
Holdback is only one part of the security package on a bonded job. The same facility that supports bid bonds, performance bonds and labour and material payment bonds is what determines whether a holdback bond is available to you and on what terms. If a lien has already been registered, the instrument you need is a lien bond rather than this one — they solve different problems.
Holdback Bond FAQs
What is a holdback bond?
A holdback bond is a surety instrument that lets an owner release the statutory holdback to the contractor early while keeping a secured position. Instead of retaining ten per cent of each certified payment, the owner pays in full and holds the bond. If liens against the holdback have not expired or been satisfied at the end of the lien period, the owner demands on the bond for the amount it needs to meet its obligations.
Who does a holdback bond actually protect?
The owner. On a holdback bond the owner is the only obligee and the only party who can make a demand. A subcontractor with a preserved lien has no claim against the bond — its rights still run against the owner’s holdback obligation and against the land. This is the single most misunderstood feature of the product.
Can I get a holdback bond in Nova Scotia?
Not as a statutory instrument. A holdback bond has no footing in the Nova Scotia legislation. The Builders’ Lien Act contains no provision allowing a bond or letter of credit to be substituted for the holdback, and no bond form is prescribed. Any arrangement is contractual only, which means an owner releasing holdback against it has not satisfied its statutory retention obligation. Ontario and New Brunswick are the only Canadian jurisdictions that prescribe a form.
What is the difference between a holdback bond and a lien bond?
They solve different problems at different points. A holdback bond is pre-emptive: it substitutes for the cash an owner would otherwise retain, before any lien exists. A lien bond is reactive: it is posted with the court to vacate a lien that has already been registered against title. A holdback bond will not clear a registered lien, and a lien bond will not release holdback.
Is it demand-worded, or does the surety get to argue?
A holdback bond is demand-worded, and this is the exception to the usual rule about surety bonds. Under the Ontario form the surety must accept the owner’s demand as evidence that the condition is met and cannot dispute the existence of a default, the validity of the liens or the amount. The New Brunswick form goes further and makes the demand conclusive evidence of default.
How long does the owner have to make a demand?
One hundred and twenty calendar days from the last date on which a lien arising from the contract could have been preserved or registered, under both prescribed forms. That date runs off substantial performance or completion, not off project close-out. Miss it and the security is gone regardless of the merits of the claim.
How much is the bond written for?
A holdback bond is written for ten per cent of the original contract price as adjusted, matching the statutory holdback. In New Brunswick it drops to five per cent on Crown work supported by both performance and payment bonds, because the underlying holdback itself halves in that situation.
Does a holdback bond remove the owner’s trust obligations?
No. The statutory trust and the statutory holdback are separate obligations, and satisfying one does not satisfy the other. Releasing holdback early also moves more trust money through the contractor’s accounts, which is worth understanding before it is applied to general overhead or another job. Take advice on trust exposure rather than assuming a holdback bond addresses it.
Has Ontario’s mandatory annual release made holdback bonds unnecessary?
Holdback bonds are less necessary for contractors on long projects, and arguably more valuable to owners. From 1 January 2026 annual release is mandatory with no minimum contract value, so a contractor gets an annual release by operation of law. But lien rights do not expire annually, so owners are now paying holdback out while remaining exposed — which is precisely the gap a Form 5 fills.
What does a holdback bond cost?
Holdback bond rates are not published in Canada by any insurer, by the Surety Association of Canada or by CCDC. Pricing is quoted case by case and turns on the contractor’s financial strength, the bond amount, the project duration and what the contract requires. Any figure you see quoted online is one broker’s rate card rather than a market standard.
Can holdback be released early in Nova Scotia at all?
Yes, but only for a completed subcontract. Sections 13A and 13B of the Builders’ Lien Act allow the holdback attributable to a subcontract to be released sixty days after completion of that subcontract is certified, provided no liens arising from it remain outstanding. It is the only early-release route the province has, and it is underused because it needs someone to certify completion at the time.
