By Sabrina Miskelly, Document Crunch
“This is a very risky time, and it’s important that you understand what’s going on in the contracts that are already under construction. Who is responsible for the implications of these tariffs?” asked Josh Levy, construction attorney and CEO/Co-founder of Document Crunch, to hundreds of industry professionals during a recent webinar.
It’s a question on everyone’s mind. The rapidly changing U.S. tariff policies are creating uncertainty in our industry, and construction companies need to move fast to protect projects and profits. Where do you start? Check your contracts.
We’ll tell you exactly what to look for below. But first, a quick overview:
How Will Tariffs Affect Construction Projects?
Right away, you’ll see:
- Price hikes on materials like steel, aluminum, lumber, appliances, and flooring
- Supply chains slowing down as materials become harder to get
- Disrupted buying cycles and delivery schedules
Down the road, we might see:
- Foreign suppliers adjusting operations to keep U.S. customers
- Suppliers giving up on the U.S. market altogether
- More domestic production, though building U.S. supply chains will take time
- U.S. suppliers raising prices due to higher demand
Who Gets Stuck with the Bill?
General contractors often shoulder the most significant financial impact of tariff increases. Under fixed-price contracts, GCs typically assume the risk of construction material cost increases while managing relationships with both owners and subcontractors/suppliers.
What to Do Right Now
- Look at all your existing contracts (cheat sheet below)
- Talk with owners and subs about changing costs ASAP
- Work out risk-sharing plans with your project partners
- Consider different suppliers and materials, if possible
- Stay informed and stay ahead of potential issues
What Should You Look for in Your Contracts?
Most standard contracts don’t directly address tariffs. These issues can be buried within hundreds of pages of contracts and documents. Here’s what to look for:
- Price Adjustment Clauses allow for price adjustments in response to material cost fluctuations caused by tariffs. These clauses can ensure that partners, such as suppliers and subcontractors, share the risk of unexpected cost increases.
- Force Majeure Clauses can cover unexpected tariff-related disruptions to the supply chain. This clause can detail alternative sourcing strategies and agreed-upon response plans in case of material shortages.
- Delay Remedies are important as time and/or cost adjustment mechanisms. Tariffs may price contractors out of purchasing certain materials and may require them to spend more time trying to find alternatives. Having a contractual right to seek additional contract time and/or contract sum will prevent the contractor from falling behind schedule.
- Insurance and Performance Bond Provisions need to protect contractors from financial risk. When tariffs disrupt supply chains, schedule delays can lead to performance issues that increase exposure under performance bonds. Contractors need to negotiate indemnification clauses that protect against unforeseen risks that impact bond obligations and financial guarantees.
- Notice Requirement Clauses need to include detailed, explicit steps that help the contractor secure entitlements if material costs increase. Requirements need to allow for the time and circumstances to submit notice if tariffs impact the project supply chain.
- Change in Law Provisions need to explicitly identify tariff-related cost increases as a reimbursable change. This clause is often written too broadly, and it takes legal intervention to prove specific circumstances, like tariffs, are covered.
While it’s certainly possible to tackle your contracts on your own, there are also construction-specific tech tools out there to help.
To ensure everyone in the construction industry has access to affordable resources that can have a make-or-break impact on their businesses, Document Crunch recently made its Tariff Preparedness Checklist FREE to anyone. The AI-powered solution automatically flags the issues listed above within any construction contract.
“We believe in being a great partner, and being a great partner doesn’t just mean standing together when the times are great. It also means standing together through the uncertain times,” adds Levy.
About the Author:
Sabrina Miskelly, the Creative Director at Document Crunch, played a key role in crafting this article, bringing clarity and engagement to complex construction topics. Josh Levy, the CEO and co-founder of Document Crunch, is quoted throughout the piece. A former construction attorney at JE Dunn Construction Group, he co-founded Document Crunch to revolutionize construction document analysis and contract compliance leveraging Crunch AI.
