Marc A. Sanchez Shares Tariff Best Practices for Contractors

The administration’s sweeping tariffs are causing tremendous uncertainty with constant changes in rates, duration, and goods subject to these tariffs and which countries will be exempt. With more change surely coming, there are 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. Essentially, it is a tax. Historically, tariffs have been implemented to raise revenue for the government, restrict imports and protect domestic producers from foreign competition, and reach reciprocity agreements that reduce trade barriers.

Congress implemented tariffs as one of its first acts with George Washington, however, they generally 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 1980s 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 new tariffs on April 2, 2025, calling it “Liberation Day.”

Impacts to Contractors

Tariffs will impact all business sectors in the US, particularly construction. Some examples include:

• Increased Material Costs. Contractors relying on imported goods for projects will face higher procurement costs. Domestic suppliers of the same or similar products will increase pricing to just below the cost for the imported goods, making both foreign and domestic materials more expensive, especially aluminum and steel.
• Supply Chain Disruptions. Tariffs may delay material and equipment deliveries, leading to cost and schedule impacts. In some cases, there may be shortages and items may become completely unavailable.
• 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.

Best Practices for Existing Contracts

If a 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. Nevertheless, if tariffs are increasing costs or delaying performance, the following contract provision may provide some relief.

Delays and Extensions of Time

The unmodified versions of the American Institute of Architects (“AIA”) A201 at § 8.3 and the ConsensusDOCS 200 at § 6.3 provide mandatory time extensions (but no additional money) for delays outside the contractor’s control. Although neither specifically mentions tariffs, both provisions may help.

It is important to note that these provisions extend the contract time and provide relief from liquidated damages, but do not allow nonperformance and will not provide for the recovery of delay costs like extended general conditions costs, or tariff-driven price raises.

A contractor must also 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. While the AIA does not have a change in law provision, ConsensusDOCS 200 § 3.21.1 does. This provision will not apply to domestically produced materials that escalated in price due to tariffs or tariffs unrelated to the contractor’s materials. Also, to the extent it is included, the ConsensusDOCS 200.1 Material Price Escalation Amendment deals directly with this issue.

Taxes

The AIA A201 does not directly address tariffs, but states:

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.

Termination

Neither the AIA, nor ConsensusDOCS permits a Contractor to terminate a contract because of Tariff-related price increases. At § 11.5.1.2, however, the ConsensusDOCS may allow for termination if a tariff causes material, like steel or aluminum, to become unavailable.

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.

Frustration of Purpose / Legal Impossibility / Impracticability

Courts do not traditionally accept arguments of impossibility, impracticability, or frustration.

Conclusion

Hopefully, existing provisions in the AIA and ConsensusDOCS contracts can provide some relief if you find yourself in a lump sum or Guaranteed Maximum Price contract. New contracts should include Price Escalation or Force Majeure provisions that deal with tariff-related cost increases and time impacts. Allowances or tariff-specific contingencies are another way to shift price escalation risks posed by tariffs under fixed price contracts. In addition, the inclusion of material substitution/value engineering provisions will provide flexibility in the materials/equipment/design can provide safeguards in the event that tariffs make certain materials or equipment cost prohibitive. Finally, general contractors and construction managers should consider adding a liquidating provision in their subcontractors to ensure that any increase in a subcontractor’s costs is passed directly onto the Owner, or not at all.

Please contact Marc A. Sanchez, or any attorney of our Construction Practice Group if you have questions regarding best practices under the Trump administration’s new tariffs.