If the past two months are any indication, the implementation of tariffs by the U.S. on Canada, Mexico, China and other countries will continue to be unpredictable. But the construction industry can’t wait to develop a strategy for managing the disruptions and cost increases that lie ahead in the coming months and years.
General contractors and trade contractors face particularly steep challenges, especially as many have contracts in place for projects that require them to assume the risk of rising material costs. They’re under heavy pressure to adapt to high tariffs while accounting for shortages, higher prices and supply chain disruptions.
There are many ways for construction contractors to manage the consequences of tariffs for their supply chains, from alternative sourcing strategies to the implementation of contracts that provide greater flexibility in project execution. Those that choose to make these shifts now will be in a much stronger position to navigate regulatory uncertainty and build supply chain resilience in the years to come.
Bracing for the Impact
Several of the countries that have been hit hardest by tariffs are major suppliers of construction materials to the U.S. Canada is the top exporter of steel, accounting for 23% of U.S. imports in 2024, while Mexico occupies third place (behind Brazil) at 12%. Both countries are also major suppliers of iron, and the U.S. gets 58% of its aluminum imports from Canada. The U.S. also imports large quantities of construction materials from China, which is facing massive across-the-board tariffs.
The most immediate impact of tariffs on construction will be that projects may face delays, as previous procurement assumptions become unfeasible. It’s likely that cost overruns will become more frequent and severe, and the buying cycle will be more unpredictable. Some stakeholders may decide it makes more sense to close down their businesses rather than try and absorb these cost overruns. It will take some time for supply chains to adapt to these shocks, a process that will be even more volatile due to uncertainty over which specific tariffs will be applied and how long they will last. All the more reason why it’s essential to negotiate contracts that provide greater latitude to adjust supply chains to rapidly changing circumstances.
All contractors must focus on both upstream and downstream relationships with subcontractors and suppliers. This means they have to be especially proactive about negotiating contracts that address the short- and long-term supply chain risks posed by tariffs. For companies across the construction industry — whether they’re general or trade contractors — it has never been more important to take a hard look at the process of negotiating, evaluating, and implementing contracts. Again, knowledge is power.
Are Your Contracts at Risk?
The need for contract evaluation (and, in some cases, renegotiation) applies to new and existing contracts. It’s essential to have a detailed understanding of the exact provisions of current contracts, which will enable informed decision-making about sourcing, pricing, timelines and other forms of strategic planning. Contractors don’t just have tariffs to worry about; those that work with the federal government should also be aware of a February 26 executive order that directs agency heads to “terminate or modify” contracts to reduce or reallocate federal spending in line with the administration’s policies.
Regardless of whether a contractor is doing business with the government, it’s crucial to conduct comprehensive risk assessments of active contracts, to identify potential vulnerabilities or provisions that are relevant to external developments like tariffs. This means highlighting language relating to tariffs or other policy-related costs, insurance coverage, notification requirements, workforce shortages, and all forms of supply chain disruption.
Having conducted a thorough review of current contracts, contractors need to have an open dialogue with partners to set expectations and reduce the likelihood of a dispute. Whether this requires clarification, renegotiation or even a reassessment of the entire relationship, contractors and their partners shouldn’t wait to address any potential issues that may be created or exacerbated by the tariffs.
Best Practices for Negotiation
Several critical elements of contracts that will help companies mitigate the risks posed by tariffs and strengthen their supply chains. First, contracts ideally should be flexible in light of this new paradigm. This means they should include price adjustment clauses that allow contractors to account for factors that lead to higher costs, such as tariffs and other supply chain shocks. This will ensure that the project at large, versus just one stakeholder, assumes the risks of unanticipated cost increases. As the tariffs take hold, it also might be necessary to adjust timelines as supply chains slow down, and contractors struggle to find affordable alternatives.
While the implementation of tariffs is unpredictable, contractors and partners can prepare with force majeure clauses that outline response plans and alternative sourcing strategies. Notice requirements should provide contractors with sufficient time to report how tariffs are affecting the supply chain, and must include a clearly defined process for securing entitlements. Change-in-law provisions that determine whether tariff costs are reimbursable must be clear and explicit — such language is often too vague to be actionable for contractors.
At a time when tariffs are already causing widespread supply chain disruption, interrupting project timelines, and driving up costs, it’s vital for contractors to adapt to these changes. By negotiating contracts that address the risks posed by tariffs, contractors will have the flexibility and resources they need to keep their projects on target.
Josh Levy is chief executive officer and co-founder of Document Crunch.