Dealing with Tariffs and Price Changes in Construction
Supply chain disruptions, labor shortages, and unpredictable tariffs have created new challenges for the construction industry. With fluctuating costs on materials like steel, lumber, stone, and even essential machinery and tools, navigating today’s market is more complex than ever.
Planning Ahead for Uncertainty
We encourage our clients to take a proactive approach when planning current and future projects. While change during a project’s lifecycle is nothing new, today’s price volatility—driven by external forces like tariffs—requires additional foresight. One way to prepare is by including escalation clauses in your contracts. These clauses clearly define the triggers, costs, and application of any price adjustments, helping to protect all parties involved.
Will Your Business Be Affected by Tariffs?
In short: most likely.
Contractors are especially vulnerable to additional costs if material prices rise after a project has already been quoted. Without contractual protections, these increases can eat into your profit margins or create disputes. Depending on the type of contract, the impact can vary:
- Fixed-Price (Lump Sum) Contracts: The contractor absorbs all cost increases unless an escalation clause is included—putting profit margins at risk.
- Cost-Plus Contracts: Price increases can typically be passed to the owner, unless capped by a Guaranteed Maximum Price (GMP). (This may lead to homeowners being disgruntled about higher prices.)
- Guaranteed Pricing Agreements: Contractors may be locked into supplier pricing with no protection from future increases, which is why carefully structured agreements are essential.
Don’t Overlook Subcontractor and Supplier Agreements
Another key area of risk is in downstream agreements. General contractors should ensure that any escalation protections negotiated with project owners are also reflected in contracts with suppliers and subcontractors. Without alignment, you may be left covering cost increases you can’t pass down the chain.
How to Prepare for Tariffs
Your first step should be a thorough contract review—top to bottom. Ensure you’ve got the necessary clauses to protect against unforeseen cost spikes.
Other preparation strategies include:
- Stockpiling key materials in advance
- Diversifying suppliers
- Considering alternative, cost-effective materials
- Communicate with the owner so they are aware of any additional costs
We know you’ve got your hands full—especially with the new 14-point Misclassification Law checklist in effect.
Let us handle the legal heavy lifting, so you can focus on what you do best: building. You can reach us at info@northstarlaw.com, via our website at www.northstarlaw.com or via phone at 651-330-9678.
