The Tariff Quagmire: Overcoming Uncertainty from Tariffs and Other Unstable Market Conditions

By James T. Rohlfing and W. Matthew Bryant of Saul Ewing LLP
Originally published July 28, 2025

In 2025, the second Trump administration has made sweeping use of tariffs. Tariffs have been imposed and suspended several times, in varying amounts, against a multitude of countries on all types of goods used in the construction industry. The exact tariffs in place seem to change almost daily, making the risk to contractors and subcontractors potentially devastating. In January 2025, the administration announced a plan to impose twenty-five percent tariffs on Canadian and Mexican imports, and in February, tariffs were put in place on steel and aluminum imports from those countries. On April 2, 2025, so-called “Liberation Day,” high tariffs were imposed against most countries, then some but not all were suspended, then in July 2025, the suspension was extended to August 2025. To put it plainly, no one knows with certainty what tariffs will be imposed, when they will take effect, against which countries, or as to which materials.

Pre-contract Risk Reduction

Subcontractors should assess the risks posed by tariffs by first identifying vulnerable supply chains, then communicating early in the contracting process with those suppliers and with upstream parties, such as general contractors and owners to develop strategies to address the risk. If potential price increases or delays are recognized early enough, owners, developers, and lenders will more likely be willing to absorb some of the risk. The potential for locking in prices, buying materials in advance, accessing alternative suppliers, and negotiating favorable contract terms becomes more likely if those efforts are started early.

To preserve potential contract claims in the event a later dispute should arise caused by price increases or project delays due to tariffs, subcontractors should keep track of the originally budgeted price, and whether the increase is due to tariffs. Of course, as with any claim, documenting the impact of tariffs and complying with contract requirements to provide timely notice upstream is vital.

Contract Negotiation to Mitigate Risk

The most effective way to allocate risk caused by tariffs is to negotiate reasonable contract provisions addressing that risk. Historically, owners and upstream contractors have leverage over subcontractors because the upstream parties control project funds and are generally of larger size. Where an upstream party attempts to impose a risk upon a downstream party to the contract, the downstream party may provide a price based on a worst-case scenario, instead of a “reasonable” price for materials. However, in the current unusually unpredictable market conditions, there may be fewer subcontractors willing to assume the risk of materials price increases. Some upstream contractors and owners are willing to agree to contract language accepting some of the risk so they have an alternative to subcontractors providing bids based on worst-case scenarios due to tariffs.

Provisions to negotiate to include in subcontracts addressing excessive risk from tariffs include “materials availability” clauses, and “price escalation” clauses. A “materials availability” clause addresses cost and time impacts due to shortages and delays in the market from tariffs and other causes. A “price escalation” clause addresses materials pricing at delivery that exceeds the price contemplated at the time of entering the contract and allows equitable adjustment of the contract sum to account for the changed price.

The delays and extensions of time clause (sometimes called a “force majeure” clause) in the commonly used AIA general conditions, provides an extension of time for the downstream contractor to perform the work due to “unusual delay in deliveries,” but there is no adjustment to the contract sum to compensate the downstream subcontractor. A downstream contractor may be able to negotiate a modification to allow for equitable adjustment of both the contract time and the contract sum in the event the parties expect that there may be some project impact caused by unavailability of product. The parties may also add substantial and unforeseeable increase in materials price as a condition for allowing relief under a modified force majeure clause.

Another way to address increased prices or unavailable materials due to tariffs is to include a separate line item in the schedule of values, a separate allowance, or a separate contingency for delay or tariff costs. One benefit from using one of these methods is to isolate the effect of tariffs on materials availability. Another benefit is to allow for documentation and tracking of cost and time impacts of tariffs and materials availability separate from other project cost or time impact events.

The parties can also address increases in materials prices using a price escalation clause. An effective price escalation clause will have a clear trigger, such as an increase in price between the date of the contract and the date that materials are delivered to the site for inclusion in the project. The parties may limit this provision to be applicable only to materials that the parties anticipate will be subject to great variation in price, or that will constitute a significant portion of the materials cost for the project. For example, the parties may agree that on a project involving steel framing that changes in the price of steel, but not other materials, may allow for relief if the change in the steel price is large. Another way to allow for changes in price can be by making the availability of price relief dependent on significant change in a third-party price index. This helps assure an upstream party that the change in materials price is throughout the entire market, and not due to any particular action by a downstream contractor or its suppliers.

The parties may also agree to share the cost impact of materials price increases. For example, the parties may agree that the downstream party will bear the first zero to ten percent of materials price changes; the parties will share price increases equally for price changes from ten to twenty percent; and the upstream party will bear the risk of price changes over twenty percent, on the basis that the upstream party (and ultimately, the project owner) will receive the benefit of the materials incorporated into the project, and should not receive a windfall if the materials are significantly higher in price than anticipated. When negotiating a price escalation clause, it may also be beneficial for the parties to provide that if there is a downward movement in price, the upstream party will benefit from the decrease in the price of the materials, to avoid a corresponding windfall to the downstream party.

Finally, uncertainty about future price increases can be addressed by procuring the materials early in the construction process. This will allow price certainty to be known to the parties, and there will not be a risk of significant increase in price later in the project that will negatively affect the project’s viability. Of course, there are costs in the early purchase of materials, including having to store the materials, having to handle the materials multiple times, arranging for insurance, and having one’s capital tied up.

Conclusion

The current administration’s tariff actions are causing significant uncertainty in the economy generally and in the construction industry specifically. Because the uncertainty from tariffs is greater than it has been historically, parties should consider ways to protect themselves from tariff-caused risks, including through an early assessment of supply chain vulnerabilities, communicating those potential problems early to upstream customers, working with upstream parties to employ risk reduction strategies and, most importantly, by negotiating contract provisions to protect against assumption of excessive and unfair risk. The above suggestions are not intended to be legal advice, and consultation with a qualified attorney before entering into contracts is strongly advised.

A version of this article previously appeared in the Summer 2025 edition of Substance, a publication of the Illinois Mechanical & Specialty Contractors Association.

James T. Rohlfing is a Partner with Saul Ewing LLP. His practice is focused in the areas of construction law and business litigation. Since being admitted to the Illinois bar in 1982, James has represented subcontractors, contractors and others in the construction industry to avoid and resolve legal disputes and protect his clients’ rights. He can be reached at james.rohlfing@saul.com or312.876.7843.

W. Matthew Bryant is Counsel with Saul Ewing LLP. He focuses his practice on construction law. He writes and negotiates construction contracts for private and public projects, representing participants including owners, architects, engineers, general contractors, and subcontractors. He resolves construction project performance and payment disputes, including surety bond claims and mechanics lien claims. He can be reached at matthew.bryant@saul.com or 312.876.6679.