Tariff Best Practices for Contractors

Tariff Best Practices for Contactors
              The administration’s sweeping tariffs are causing tremendous uncertainty. Compounding this uncertainty are the continual changes in rates, duration, goods subject to these tariffs and which countries will be exempt. About the only thing we know for sure is more change is coming. This presentation outlines best practices to mitigate the cost and disruption impacts caused by these new tariffs.
 

What is a Tariff?
             A tariff is an extra fee charged on an item by a country that imports that item. Basically, it is a tax. Historically, tariffs have been implemented to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers. Tariffs are nothing new. Congress implemented tariffs as one of its first acts with George Washington stating:
             A free people ought not only to be armed, but disciplined; to which end a uniform and well-digested plan is requisite; and their safety and interest require that they should promote such manufactories as tend to render them independent of others for essential, particularly military, supplies.
Generally, tariffs fell out of favor after World War II as the world saw the implementation of General Agreement on Trade and Tariffs, which later became the World Trade Organization. From the 1980’s to 2000, we saw the creation of the Canada-US Free Trade Agreement, which later became the North American Free Trade Agreement or NAFTA. As these policies resulted in deindustrialization and wage deflation, as well as the strengthening of the Chinese economy, tariffs were reinvigorated. Tariffs were a focus of the first Trump Administration and are now at the forefront since it announced, on April 2, 2025, new tariffs calling it “Liberation Day.”
 

Impacts to Contractors
            Tariffs will impact all business sectors in the US, particularly construction. Some examples are:

• Increased Material Costs. Contractors relying on imported goods for projects will face higher procurement costs. Further, domestic suppliers of the same or similar products will increase pricing to just below the cost for the imported goods. Thus, tariffs will increase the cost of both foreign and domestic materials, especially aluminum and steel.
• Supply Chain Disruptions. Tariffs may cause delays in obtaining materials and equipment, leading to cost and schedule impacts. In addition to delays, there may be shortages and in extreme cases, critical materials and equipment may become unavailable altogether.
• Uncertainty in Contract Pricing. Contractors will struggle to estimate future costs or adjust existing contract bids to account for tariff-related price increases and delays.
 

Current Tariff Status
             As of the writing of this article, the following tariffs exist: (i) Universal Tariff of 10% for all goods coming into the United States; (ii) China – Combined tariffs equaling up to a 245% import tax on Chinese goods; and (iii) Aluminum and Steel – Tariffs at a rate of 25%.
 

Best Practices for Existing Contracts
             If your company is working under an existing contract, its options are somewhat limited. Generally, unmodified contracts place the risk of future tariff impacts squarely on the contractor. As described below, if tariffs are increasing costs or delaying performance the following contract provision may provide some relief.
 

Delays and Extensions of Time
             These provisions are designed to provide the contractor with relief in the event of delays, not caused by the contractor and beyond its control. As we all learned during COVID, these clauses are sometimes referred to as force majeure. The unmodified versions of the American Institute of Architects (“AIA”) A201 at § 8.3 and the ConsensusDocs 200 at § 6.3 both call for mandatory time extensions (but no additional money) in the event of a delay beyond the control of the contractor. Although neither specifically mentions tariffs, both provisions may help.
 

The AIA A201 provides:
              § 8.3 Delays and Extensions of Time
              § 8.3.1 If the Contractor is delayed at any time in the commencement or progress of the Work by (1) an act or neglect of the Owner or Architect, of an employee of either, or of a Separate Contractor; (2) by changes ordered in the Work; (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; (4) by delay authorized by the Owner pending mediation and binding dispute resolution; or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine. [Emphasis added.]
ConsensusDocs offers similar protection:
               6.3. DELAYS AND EXTENSIONS OF TIME
               6.3.1 If Constructor is delayed at any time in the commencement or progress of the Work by any cause beyond the control of Constructor, Constructor shall be entitled to an equitable extension of the Contract Time. Examples of causes beyond the control of Constructor include, but are not limited to, the following: … (j) epidemics; (k) adverse governmental actions…. Constructor shall submit any requests for equitable extensions of Contract Time in accordance with ARTICLE 8. [Emphasis added.]
              These provisions will extend the contract time only. They will not allow nonperformance and will not provide for the recovery of delay costs like extended general costs, or the tariff-driven cost increases of the materials themselves.
As always, in making claims for additional time, a contractor must be vigilant to comply with the contract’s notice provisions. For example, claims for time extensions must be made under the AIA A201 § 15.1.3 Notice of Claims “within 21 days after occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim, whichever is later.” Under the ConsensusDocs 200 § 6.3.3, a constructor must give “prompt written notice to Owner of the cause of such delays after Constructor first recognizes the delay.”

Change in Law
               Change in Law provisions typically do not excuse performance. Rather, they entitle a contractor to additional time or money in order to complete its work. Depending on the language of the clause, a contractor (or subcontractor) may be able to increase the contract price and/or contract time due to impacts caused by tariffs. The AIA does not have a change in law provision. However, ConsensusDocs 200 § 3.21.1 provides:  

                The Contract Price or Contract Time shall be equitably adjusted by Change Order for additional costs resulting from any changes in Laws, including increased taxes, which were not reasonably anticipated and then enacted after the date of this Agreement.
“Laws” means federal, state, and local laws, ordinances, codes, rules, and regulations, applicable to the Work with which the Constructor must comply that are enacted as of the Agreement date.Note that this provision will not apply to domestically produced materials that escalated in price because of tariffs (as noted above domestically produced items will increase in cost to capture profit as tariffs increase the cost of foreign materials or equipment). Further, it will not apply where the tariffs did not directly apply to the contractor’s material.Outside of the standardized language in ConsensusDocs, bespoke change in law clauses will include varying requirements and consequences. For example, a non-standard change in law provision may allow additional time, but not money, or may simply call for a meeting to discuss the change.

Taxes
                The AIA A201 does not directly address tariffs, but states:
§ 3.6 Taxes The Contractor shall pay sales, consumer, use, and similar taxes for the Work provided by the Contractor that are legally enacted when bids are received or negotiations concluded, whether or not yet effective or merely scheduled to go into effect.
This provides a basis to argue that a tariff is a tax enacted after the bid was received or the contract was negotiated. The counter argument, however, is that tariffs are not a “sales, consumer, [or] use” tax envisioned by this clause.
ConsensusDocs 200 § 3.17.1 states: “The Constructor shall pay all applicable taxes enacted when bids are received or negotiations concluded for the Work provided by the Constructor.” However, the ConsensusDocs 200 at § 3.21.1 Change in Law provision provides a better argument and, to the extent it was included, the ConsensusDocs 200.1 Material Price Escalation Amendment deals directly with this issue. 
 

Termination

                   Both the AIA and ConsensusDocs provide that a contractor can terminate a contract under very limited circumstances.
The AIA provides:
§ 14.1 Termination by the Contractor
§ 14.1.1 The Contractor may terminate the Contract if the Work is stopped for a period of 30 consecutive days through no act or fault of the Contractor, Subcontractor, a Sub-subcontractor, or any other persons or entities performing portions of the Work, for any of the following reasons:
.1 Issuance of an order of a court or other public authority having jurisdiction that requires all Work to be stopped;
.2 An act of government, such as a declaration of national emergency, that requires all Work be stopped;
.3 Because the Architect has not issued a Certificate for Payment and has not notified the Contractor of the reason for withholding the certification as provided in Section 9.4.1, or because the Owner has not made payment on a Certificate for Payment within the time stated in the Contract Documents;
.4 The Owner has failed to furnish to the Contractor reasonable evidence as required by Section 2.2 [evidence of the owner’s financial arrangements].
A contractor may also terminate if aggregate suspensions, delays, or interruptions of the work by the owner total over a certain number of days. Specifically, the lesser of: (i) 120 days; or (ii) more than 100 percent of the total number of days scheduled for completion in any 365-day period.
In its unmodified form, the AIA will not provide relief, in either time or money, for tariff impacts. However, check for modifications that might expand your rights to terminate.
 

ConsensusDocs 200 states:
          11.5 Constructor’s Right to Terminate
          11.5.1 Upon seven (7) days written notice to the Owner, Constructor may terminate this Agreement if the Work has been stopped for a thirty (30) Day period through no fault of the Constructor for any of the following reasons:

           11.5.1.1 under court order or order of other government authorities having jurisdiction;
           11.5.1.2 as a result of the declaration of a national emergency or other governmental act which, through no act or fault of the Constructor, materials are not available; or
           11.5.1.3 suspension by the Owner for convenience pursuant to section 11.1. [Emphasis added.]
Further, the constructor may terminate if the owner materially breaches the contract or fails to pay. If a tariff causes material, like steel or aluminum, to become unavailable, the ConsensusDocs Termination for Convenience clause may offer some relief.
The benefits of invoking a termination clause include: (i) excusing further performance; and (ii) getting paid for work performed through the date of termination.
 

Contract Amendment / Modification
           A contractor can always request that the owner modify or amend the contract to deal with tariffs. There is no guarantee, however, that an owner would be willing to change the terms of the contract after execution. Both the AIA and ConsensusDocs contemplate written modifications to the agreement by change order or otherwise.
 

Frustration of Purpose / Legal Impossibility / Impracticability
           These are the common law arguments that, traditionally, have not been accepted by courts. For example, Mt. Pleasant Blacktopping Co., Inc. v. Inverness Group, Inc., 2025-Ohio-284, ¶ 70 (1st Dist.) involved the installation of sewer lines in several phases for a housing development. Between phase 3 and 4, the county changed its applicable standard for installation, which indicated lines with any “bellies” where standing water could accumulate would be rejected. In responding to the contractor’s argument about the high cost that would be incurred to remove and reinstall the lines, the Court of Appeals held:
That $240,000 is a sizable sum, but “[a] party cannot be excused from performance merely because performance may prove difficult, burdensome, or economically disadvantageous.” Stand Energy Corp. v. Cinergy Servs., 144 Ohio App.3d 410, 416 (1st Dist. 2001), citing State ex rel. Jewett v. Sayre, 91 Ohio St. 85 (1914). Courts are traditionally reticent to treat mere increases in cost as rendering contractual performance “impossible” or even “impracticable.”

Federal Contracts
           Although, federal contracts are outside the scope of this presentation, several Federal Acquisition Regulations (“FAR”) are worth noting.
The After-Imposed Tax clause, FAR 52.229-3, allows for the recovery of taxes and duties imposed after the bid opening date in sealed bid procurements or after the contract’s effective date in negotiated procurements. Economic Price Adjustment clauses FAR 52.216–2. FAR 52.216-3, FAR 52.216-4, shift the risk of price changes to the government and Limitation of Cost provisions, FAR 52.232-20, FAR 52.232-22, allow additional costs if proper notice is given.
 

New Contracts
          In the current climate, best practice is to include provisions in your contracts that expressly deal with the potential time and price impacts of tariffs. Contractors should include some or all of the following:
 

Price Escalation
         An escalation clause allows for adjustments to the contract price based on specified circumstances or factors. It is commonly used when there is a possibility of increased costs during the contract period due to factors beyond the control of either party.
The specific details of an escalation clause can vary depending on the agreement. Typically, the clause will outline the formula or method used to calculate the price adjustment. This could be based on a predetermined index or benchmark, or it may involve negotiations between the parties to determine a fair adjustment.
         There is no Price Escalation clause in the AIA A201. ConsensusDocs does offer an Material Price Escalation Amendment called “ConsensusDocs 200.1 Potentially Time and Price-Impacted Materials.” Attached as Exhibit A.
The following is an example of a Price Escalation clause that can be used in a fixed price contract or a cost plus with a guaranteed maximum price contract:
If the cost of the materials and/or equipment described below increases by more than __% over the amount estimated in calculating the Contract Price, Contractor shall promptly provide Owner with a written request for an equitable adjustment. The Contract Price shall be increased by the difference between the original cost estimate and the actual costs paid by the Contractor, without markup or overhead. In no event shall the Contract Price, be adjusted more than __% percent over the original Contract Price for the aggregate of all increases. Any adjustment of the Contract Price under this provision shall not be duplicated in any contingency amounts established under the terms of the Agreement, or by any allowance.
 

Potentially Impacted Materials and Equipment: Steel, Electrical equipment, Aluminum.
           As you can see, these types of clauses require cost transparency and can be used in place of allowances or contingencies. Critical here is to establish baseline costs for the material and/or equipment and the price variation that triggers the clause. Such mechanisms could include periodic contract reviews for price adjustments, or predetermined responses to potential future tariffs.
Best practices also call for the utilization of a rider or addendum to effectuate these changes. This will avoid having to negotiate with an owner to include these terms in standard form agreements, like the AIA or ConsensusDocs. Further, negotiations may encourage an owner to include downward cost adjustments if the cost of materials or equipment actually goes down during the course of construction.
 

Force Majeure
          As discussed above, Delay and Extension of Time provisions should be changed to allow for increased cost, as opposed to only time. See Delay and Extensions of Time, above.
Existing force majeure language should be updated as follows:
         “Force Majeure” means Acts of God, unusual weather events, acts of war or terrorism, pandemics, epidemics, riots, newly announced or enacted governmental restrictions or other acts by governmental bodies (local, national or foreign), including but not limited to the imposition of tariffs or other trade restrictions, labor disputes, labor shortages (including but not limited to the unavailability of qualified and properly trained labor forces), material shortages, unusual transportation delays, fire, flood, tornado, earthquake or other natural disaster, or any other events beyond the reasonable control of the Contractor. If the cost of materials increases or the Contractor is delayed or anticipates a future impact or delay due to an event of Force Majeure, Contractor shall provide prompt notice to the Owner and the Contract Time and Contract Sum shall be equitably adjusted.
Although owners may not accept this provision as written, this should be suggested as a starting point. As written here, this provision will protect a contractor from any documented cost increases or delays caused by tariffs. It goes without saying that any cost and time impacts must be identifiable and properly tracked.
 

Change in Law / Tax
          As discussed above, ConsensusDocs 200 at § 3.21.1 and “ConsensusDocs 200.1 Potentially Time and Price-Impacted Materials” provide the contractor with protection against the cost and time impacts of future tariffs.
If using AIA documents or others, Contractors should use the price escalation clause and/or the force majeure clause noted above.
 

Allowance / Tariff Specific Contingency
          Allowances are another way to shift price escalation risks posed by tariffs under fixed price contracts. Under most allowance clauses, the amount allocated for a product or material is an estimate. The Owner pays the actual cost of the allowance item, whether it goes up or down, and the contract price or guaranteed maximum price is adjusted via change order.
Contingencies are not normally found in lump sum, fixed price contracts. Under cost plus guaranteed maximum price contracts, like the AIA A133-2019, the price, although capped, is not fixed. The contractor is paid approved costs and its fee, up to the guaranteed maximum price.
Most guaranteed maximum price contracts include a contingency account for costs otherwise not reimbursable on the basis of a change order.
          First, make it clear that tariffs are an approved contingency expense. Next, consider whether you can apply any markup, the impact of any shared savings clause, and whether contingency must be exhausted before you may request a change order. Finally, consider sharing tariff risk with the owner by splitting the risk, reducing your fee if the owner takes the risk, or by sharing the risk in tranches where the owner covers a set amount of the increase before you absorb the cost or vice versa.
 

Liquidating Provision
         A liquidating clause conditions and limits a contractor’s liability to a subcontractor or supplier to the amount recovered from the owner on the subcontractor’s or supplier’s claim. These are non-standard provisions. An example is:
Subcontractor’s right of recovery arising from any future tariffs shall be limited to that amount which Contractor recovers from Owner. Contractor shall not be liable to Subcontractor for any amount except those paid to Contractor by Owner for Subcontractor. Subcontractor waives any right to further payment, other than to the extent that Contractor may receive amounts from Owner on behalf of Subcontractor, which amounts shall be paid to Subcontractor.
 

Material Substitution / Value Engineering
          Finally, providing flexibility in the materials/equipment/design is an appropriate safeguard in the event that tariffs make certain supplies cost prohibitive.
 

Conclusion
           The uncertainty caused by tariffs is not going away. If new or changed tariffs are affecting existing contracts, all is not lost. Have an experienced construction attorney review any impacted contracts and assist you in developing an effective strategy to mitigate any cost impacts and delays caused by these tariffs. Moving forward, contractors should modify the standard language in AIA and ConsensusDocs contracts to protect themselves. Updating standard contract language and adding new provisions is key. As discussed, contractors should include price escalation, force majeure, and change in law/tax clauses in their contracts with owners. Further, contractors should include liquidating language in their subcontracts and supply contracts to limit their liability downstream.

Contact Marc Sanchez at [email protected] for assistance.