Written by Peter K. Buckley, Esq.
Smith Currie Oles
Fort Lauderdale
Phone: 954.769.5326
Email: pkbuckley@smithcurrie.com pkbuckley@smithcurrie.com
President Donald Trump has implemented his “America First” trade policy throughout 2025 by implementing a sweeping set of tariffs aimed at reducing U.S. reliance on foreign goods. The tariffs, which have fluctuated since January, have included threats of a 145% tariff on goods imported from China, a 50% tariff on steel and aluminum, and a 10% universal import tariff on all goods entering the U.S. With the proposed tariffs constantly fluctuating, the impact has quickly rippled through the construction industry, where cost certainty and supply chain reliability are essential. As contractors scramble to mitigate exposure to escalating material costs and procurement delays, contractors, owners, and construction professionals alike must revisit how tariffs are addressed, or not addressed, in their contracts.
While tariffs are not new, their resurgence under Trump’s trade policy poses unique challenges. The 2025 tariffs have been unpredictable, imposed on nearly every country, and impact every tier of the supply chain.
Impact of Prior Tariffs
The construction industry can look to history for guidance. For example, in 2018 during President Trump’s first term, he imposed a 25% tariff and 10% tariff on steel and aluminum imports respectively. The 2018 tariffs led to immediate price hikes in the market, followed by market instability; however, shortly thereafter, COVID-19 disrupted the construction industry as a whole blurring the long-term impact of the tariffs. The United States and Canada also have a long history of lumber tariffs which have also shown the impact of material price fluctuations on construction costs.
Accounting for Material Price Escalation
Contractors should first understand how tariffs affect the specific materials they intend to use during the course of a project. If feasible, contractors could attempt to account for future material price increases by (1) attempting to lock in material prices with suppliers early on; (2) attempting to pre-purchase materials to avoid future cost increases; (3) identifying domestic material suppliers who will be less-impacted by tariffs than foreign material suppliers; and (4) accounting for potential material price escalations in their bid or proposal.
Despite these strategies, contractors may not be able to account for all material price escalations, especially for long-term or multi-phase projects, and pricing to account for potential escalations may not allow the contractor to submit a competitive bid. In this instance, it becomes imperative that contractors properly allocate the risk of material price hikes in their contracts.
Mitigating the Risk of Material Price Hikes in Construction Contracts
The most important thing that contractors can do to protect themselves from the impact of tariffs is to address them with specificity in their contracts. While material price escalations are relatively straightforward, the impact of tariffs is not. For example, equipment that is manufactured in the United States may not be directly impacted by tariffs; however, if the components used to manufacture the equipment are sourced abroad, the contractor may still encounter price increases from the equipment supplier.
Material price escalation can be addressed under several types of contract provisions; however, the most important are (1) material price escalation clauses; (2) force majeure clauses; and (3) contingency clauses.
- Material Price Escalation Clauses
A material price escalation clause is the best method for allocating the risk of material price increases incurred as a result of tariffs or other external factors. Depending on how it is drafted, a material price escalation clause will allocate the risk between the contractor and owner. The following are several key components of a material price escalation clause:
- Identity of Materials Included: A material escalation clause may specify the materials that are covered under the clause. In this instance, a contractor should ensure that the materials that make up a significant portion of the contract are included.
- Identity of Triggering Events: The material escalation clause should specifically identify when it comes into effect (e.g., material prices for a particular material increase by 5% or more).
- Adjustment Mechanism: The material escalation clause should specify how the price adjustments will be calculated. This is commonly done through either (1) index-based adjustments (e.g., Consumer Price Index); or (2) cost-based adjustments based on the actual increased costs incurred by the contractor.
- Notification Requirements: The material price escalation clause should clearly specify how the contractor should notify the owner of the changes that trigger the material price escalation clause.
By clearly addressing material price escalation in the contract, contractors and owners can identify who bears the risk of material price escalation. These clauses can be tailored based on the needs of both parties and can allocate the risk to the owner, the contractor, or split the risk between them where material price escalations are split evenly or by a specified amount identified by the parties.
- Force Majeure
Many construction contracts contain a force majeure provision which will relieve a party of their contractual duties when performance has been prevented by a force beyond the contract. Whether tariffs would constitute a force majeure event depends on the language of the force majeure provision.
Force majeure provisions are narrowly construed by courts and typically will only be applicable if the specific event (e.g., tariffs) is identified in the provision. This is particularly important when the relief sought is avoidance of performance based on market fluctuation, because force majeure clauses are not intended to buffer a party against the normal risks of a contract. Because of this, force majeure clauses rarely entitle a party to additional compensation.
- Contingencies
Many construction contracts include a contingency clause which allows the parties to increase the overall contract amount by the contingency amount when specified events occur. If not fully used during the course of the project, this contingency saving may be split between the contractor and the owner. By including tariffs as a contingency event, contractors and owners can split the risk of tariffs.
Conclusion
President Trump’s tariffs have highlighted the impacts of material price escalation on construction contracts; however, these issues should be addressed in all contracts because even without tariffs pricing can be impacted by supply shortages, high demand, or other issues expected and unexpected. By addressing material pricing fluctuations in the construction contract, contractors can ensure that they are protected and set themselves up for a profitable job. As with any project, you should always consult an experienced construction attorney to assist with any issues your company encounters.
This article is published in Smith Currie “Construction & Government Contract Law” newsletter November 2025.
This article is also published in ConstructionRisk Report, Vol. 27, No. 8 (December 2025).
Copyright 2025, ConstructionRisk, LLC
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