What Business Owners Need to Know About How Tariffs Can Affect Commercial Construction Projects

What is a tariff?

A tariff is a tax or duty imposed by a government on imported or exported goods and services.
The purpose of tariffs is often to protect domestic industries from foreign competition, raise
government revenue, or influence trade relations between countries. Tariffs can increase the price
of imported goods, making them more expensive for consumers and businesses that rely on these
goods for production or resale.

How are tariffs affecting construction projects?

While tariffs are not new, recent changes in tariffs have begun impacting certain areas* within
the construction industry, leading to rising material costs and potential delays. The impacts of
current tariffs and future changes in tariffs are uncertain. It is important for business owners to
stay informed and proactive in managing costs.

Stay in contact with your general contractor

We recommend discussing these points with your contractor to ensure there are clear
expectations and to avoid any unexpected financial surprises during the project.

Questions to ask your contractor

To help ensure transparency and better planning for your upcoming projects, here are a few
questions business owners should ask their contractors regarding current pricing:

• Are there specific materials that have seen significant price increases due to tariffs?
• How have recent tariff changes impacted the cost of materials for my project?
• Have you adjusted your overall project cost estimate to account for these changes?
• What steps are being taken to minimize the impact of these price hikes on my project’s
  budget?
• Are there alternative materials or suppliers that could mitigate the cost increases?
• How might these tariffs affect the project timeline, especially if material shortages or
  delays occur?
• What is your strategy for addressing potential future tariff adjustments during the course
  of the project?

It’s important to review your construction contract to understand the implications of certain
clauses, effects on suppliers and potential delays. Read the tips below to help you better
understand your contract.

Understand your construction contract's force majeure clause

At the highest level, the force majeure clause is designed to relieve a party from fulfilling its
obligations under the contract due to circumstances beyond its reasonable control. Typically,
these events include natural disasters, war, strikes, or government intervention. However, the
imposition of tariffs by governments can also trigger this clause if the tariffs result in an event
that prevents or significantly delays the performance of contractual obligations. Depending on
the terms of the clause, the party affected by the tariffs may be able to invoke force majeure to
excuse their non-performance or delay in performance.

Read your contract to understand your force majeure clause, specifically, are tariffs explicitly
covered as a force majeure event? If no, is it possible they fall under broader language such as
“government action” or “trade restrictions?” It is important to understand that the clause may still
be invoked even in absence of specific tariff language.

Recognize other clauses if there is no force majeure clause

Some construction contracts do not have a specified force majeure clause. In those instances,
there can be excusable delay clauses that allow for tariff-related delays. The AIA form has
several categories that tariffs could fall into, including: “unusual delay in deliveries,”
“unavoidable casualties” and “other causes beyond the contractor’s control.”

Reach out to your Live Oak Bank Construction Specialist