David Owen and Mason Rollins | Bradley
The construction industry has always included risks – but recent years have brought a new wave of economic uncertainty. Owners, contractors, subcontractors, and suppliers are faced with increased unpredictability related to costs and scheduling due to tariffs, trade disputes, and fluctuating material costs. Currently, imported materials like steel, aluminum, lumber, and major equipment are subject to tariffs that are being modified sometimes daily. These tariff changes occur with sometimes no warning, leaving the construction industry to resolve who will pay for the increased costs or keep the surplus when tariffs go down.
So, what are tariffs? Tariffs are taxes imposed by the government on goods and services imported from another country. The tariffs are typically paid at ports, usually as a percentage of the goods’ value. Tariffs can be imposed to protect domestic industries, to increase revenue for the government, or force the hand of another government.
In light of the current uncertainty related to tariffs, proactive risk mitigation has never been more important. One way to mitigate risks is to have a good contract at the outset. Some methods to mitigate risks are discussed below.
1. CONTRACTUAL PROTECTIONS
A few years ago, the construction industry began including “COVID-19” or “pandemic” language in force majeure clauses. Similarly, given the volatility with tariffs, contractors should include provisions in their agreements that govern changes in tariffs. A tariff clause could state that if a tariff changes after the effective date of the agreement, then the owner shall pay for any increase in costs and be refunded any decrease in costs. If an owner will not agree, the contractor can consider increasing its price to cover the tariff risk. A tariff clause may be a separate provision, or it may be included as a force majeure event.
Contractors may also use escalation clauses that allow for adjustments in the contract amount if material costs rise unexpectedly. These clauses should clearly define the triggers for price adjustments and the method for calculating increases. For example, a contractor could consider including a provision that the owner shall pay for a price escalation over 5% – with the contractor taking the risk up to 5%.
Additionally, contractors may use contingency allowances in project budgets to absorb unexpected cost increases. These contingencies can be negotiated with the owner at the beginning of the project. During the project, a contractor and owner may increase the contingency via change order as a method to fund rising tariffs or other change order requests.
Owners, contractors, subcontractors, and suppliers should increase communication in uncertain economic times. Regular updates, weekly meetings, and formal notices are becoming more important to protect your interests.
2. SUPPLY CHAIN MANAGEMENT
Contractors can try to lock in prices and have materials delivered early to help avoid future tariff changes, price hikes, and shortages. This should be considered on a case-by-case basis. It may be more prudent to pay for storage costs or obtain additional lay down areas through collaboration with the owner than to deal with tariff increases later. Contractors may also identify multiple suppliers, including domestic options, to reduce tariff and supply chain risks.
3. COLLABORATION
Owners, contractors, subcontractors, and suppliers should increase communication in uncertain economic times. Regular updates, weekly meetings, and formal notices are becoming more important to protect your interests.
As an example, a steel subcontractor submits a bid explaining that its bid is based on procuring foreign steel because it is 20% cheaper than using domestic steel. The owner awards the bid to the general contractor, who in turn awards the bid to the steel subcontractor. The next day, tariffs are increased by 50% on foreign steel effective immediately.
In this hypothetical, it is important that the steel subcontractor notify the general contractor and owner of this price increase and pursuant to the contracts. With this information, the owner can make decisions about what to do on the project. The owner may agree to pay for a change order to purchase domestic steel because it is only 20% more as opposed to 50% more for foreign steel. If there is no agreement, the parties may have to exercise the dispute resolution procedures in the subcontract.
INSURANCE AND FINANCIAL PLANNING
Consider reaching out to your insurance broker to explore insurance products designed to help manage specific economic risks, such as supply chain disruptions or price volatility. For instance, a subguard insurance policy may provide financial protection in the event a subcontractor fails to perform due to rising prices or other issues. Additionally, financial instruments like futures contracts can be utilized to hedge against fluctuations in the price of equipment and materials.
CONCLUSION
In these uncertain economic times, particularly with volatile tariffs, the construction industry should seek contractual protections, proactively manage supply chains, and foster open communication among the interested parties.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.
Republished with permission. The article, “Mitigating Construction Risks Amid Economic Uncertainty” was originally published by Bradley Arant Boult Cummings LLP. Copyright 2026.