On Saturday, February 1, 2025, President Donald Trump announced the imposition of tariffs on imports from key trading partners. Specifically, the United States imposed 25% tariffs on imports from Mexico and Canada, with Canadian energy facing a lower tariff of 10%. Additionally, a 10% tariff was imposed on goods from China. On Monday, February 3, 2025, President Trump announced that he would delay imposition of tariffs on Mexico and Canada for thirty days based on agreements reached with the leaders of those countries. As of the time of publishing, there has been no change to the tariff imposed on Chinese goods.
The tariffs, if imposed as originally announced, are likely to increase the cost of construction. This could lead to higher project costs and potential delays. Here is what you need to know.
Let’s start our discussion with some background on tariffs and their operation. A tariff is a tax imposed by one country on the goods and services imported from another country. Tariffs are collected at the ports where the goods enter the country. While tariffs can be avoided by purchasing goods from domestic sellers, that is not always possible depending on the goods at issue. Further, it is often the case that, even with the imposition of a tariff, the cost of imported goods is still less even with the tariff. Many goods used frequently in construction are procured from outside of the United States, including steel, aluminum, lumber, and appliances. If tariffs are imposed on goods that a contractor needs to perform a contract in progress, and the contractor has not already purchased those goods, the contractor will likely pay an increased cost. This begs the question: who will be responsible for these higher project costs? To answer this question, it is crucial to review your contract to determine what, if any language, addresses taxes and tariffs and responsibility for these charges.
Your contract may specifically address tariffs, but it likely does not. For instance, the standard AIA contract forms do not include references to tariffs. However, AIA forms A102-2017, A133-2019, A141-2014, and A201-2017 all have language that address taxes and who pays them. As an example, Section 3.6 of the AIA A201-2017 General Conditions template reads, “The Contractor shall pay sales, consumer, use and similar taxes for the Work provided by the Contractor that are legally enacted when bids are received or negotiations concluded, whether or not yet effective or merely scheduled to go into effect.” Comparable language is found in the definition of “Cost of the Work” used in the A102-2017, A133-2019, and A141-2014 Exhibit A. A tariff is levied on importers and therefore generally not considered to be a sales, consumer, or use tax, which are levied directly consumers. So is a tariff a “similar tax”? Courts have not definitively answered to this question. Likely when this question makes its way through the courts, the analysis will involve the parties’ intent at the time the contract was executed. Did the parties anticipate that all taxes of all kinds would be the contractor’s responsibility? Or just those taxes levied on consumers?
Some contracts also have provisions addressing changes in the law and who bears the increased cost of a change in the law occurring after the contract execution date. The AIA does not include this kind of provision in its templates, but if a contractor uses its own form, it is worth investigating whether this was included. This language could also be found in a contract clause addressing the acceptable uses of contractor contingency funds.
But tariffs may not result in just increased costs. Once imposed, tariffs can lead to delays in construction. Some owners and contractors may try to find alternative suppliers or routes in order to avoid the higher costs. Additionally, there can be delays in delivery of goods due to increased customs inspections. The AIA forms do address delays and the circumstances under which a contractor may be entitled to additional time (and costs) to perform its obligations. For example, in Section 8.3.1 of the A201-2017 form, contractors may be entitled to additional time “[i]f the Contractor is delayed at any time in the commencement or progress of the Work by . . . (3) by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, adverse weather conditions documented in accordance with Section 15.1.6.2, or other causes beyond the Contractor’s control; . . . or (5) by other causes that the Contractor asserts, and the Architect determines, justify delay, then the Contract Time shall be extended for such reasonable time as the Architect may determine.” It is important to note that delay provisions in contracts are heavily negotiated so the language in your contracts may not look the same. Take time to review the delay causes in your contracts, as well as any separate “force majeure” clauses to determine whether the imposition of tariffs will allot you with more time to perform.
While some of the tariffs may be paused as of right now, it is anyone’s guess what will occur after the passage of thirty days. It is a good idea to review the contracts you have in place right now and work with your risk management and legal teams to determine who will be responsible for any tariffs that may be imposed. Similarly, if you are currently in negotiations for new projects, make sure to review the tax and delay language in those contracts before signing to ensure your interests are protected.
For more information or to discuss how to interpret the language in your contracts, please contact our team.