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Another tariff announcement from Washington may force general contractors to revise their contract terms.
President Donald Trump announced plans to impose a 50% tariff on many Canadian imports from August 19. The proposal duties will apply to all covered goodsregardless of whether they come from the US-Mexico-Canada agreement, according to a July 20 White House fact sheet.
The announcement adds another fee calculation that general contractors will need to be aware of, Trent Cotney, partner and construction team leader at law firm Adams & Reese, told Construction Dive.
“The biggest implication is the additional cost and uncertainty,” Cotney said. “Contractors often estimate work months before purchasing materials. A 50% rate can quickly render existing estimates obsolete and increase the risk of disputes over who bears the additional cost.”
The latest tariff action, which Trump imposed after he alleged Canada’s trade practices discriminated against the US, will influence how contractors approach new work, said Jason Adams, a partner at Cox, Castle & Nicholson. The biggest impact, according to Adams, is the “uncertainty that the situation creates.”
“Constantly fluctuating material prices prohibit a contractor’s ability to confidently offer fixed-price work,” Adams told Construction Dive. “Consider a material escalation and change-of-law clause in each agreement to try to share the risk of an unforeseen escalation in material prices.”
Cotney advised general contractors to immediately review existing agreements to determine whether “fee provisions, changes in law, force majeure or order modifications” could provide relief. Cotney also said companies should get up-to-date supplier quotes and confirm how long prices will remain valid. He added that companies should provide written notice as soon as a potential cost or schedule impact becomes apparent.
Impact on materials
Cement was the clearest area of concern regarding the new tariffs, according to the two lawyers.
“Rising cement costs could affect roads, infrastructure, industrial facilities, multifamily developments and large commercial projects,” Cotney said. “Contractors should review the applicable tariff classifications before assuming that all Canadian construction products are covered.”
Adams said companies should monitor concrete and cement prices, which could be similarly affected.
“The tariff puts a 50 percent tariff on cement, so that seems to be the biggest concern,” Adams said. “This will affect concrete-intensive projects such as roads, bridges and foundations.”
While importers initially pay the price of the increased tariff, Cotney said the impacts generally don’t stop there. Instead, these price increases generally appear elsewhere in the supply chain in the long run.
“The importer initially pays the tariff to the federal government,” Cotney said. “Economically, however, some or all of this cost is likely to be passed on through the supply chain to distributors, contractors, owners, and ultimately to consumers or taxpayers.”
On public projects, for example, ratepayers will likely shoulder the increase through higher bids or change orders, Cotney said. On private projects, property owners may face higher bids, reduced scope, delayed starts or claims for additional compensation, he added.
For fixed-price contracts, contractors may have little choice but to bear the additional expense, Adams said. Future projects, on the other hand, will likely reflect these higher bid costs.
Steel, aluminum and copper productsalready subject to Section 232 tariffs, are excluded from this particular tariff action, Cotney said. Other materials such as minerals, energy products, potash and certain fishery products are also exempt.
Another round of price pressure
The rate announcement comes to contractors after recent producer price index analyzes warned costs of construction materials they will likely continue to rise after a brief respite in June.
According to an analysis by Associated Builders and Contractors, construction input prices fell 1.1% month-on-month in June, largely due to lower oil prices. Despite the drop, Anirban Basu, ABC’s chief economist, said at the time that tariffs and ongoing escalations in the Iran war would increase construction costs in the coming months.
Cotney said contractors should not treat the announcement as the final word until Customs and Border Protection issues implementation instructions. Since implementation is scheduled for Aug. 19, the scope or schedule could still change through negotiations, he added.
“The biggest issue is cumulative tariff exposure,” Cotney said. “[Contractors] they face overlapping tariff programs, potential Canadian retaliation and rapidly changing product classifications. I hope more contractors will use shorter bid validity periods and more detailed substitution and price escalation clauses.”
