In January 2025, the Trump administration announced its intention to pursue an America First Trade Policy. Several months later it remains difficult to predict what measures will be employed to implement this policy from one week to the next, not least because some measures have been announced and then withdrawn, postponed or modified immediately after. Whether and to what extent construction projects experience increased materials costs, supply-chain disruptions and materials shortages, delays or perhaps even cancellations remains to be seen. What is clear, however, is that at least some of the materially increased U.S. tariffs and export controls and those levied in response to U.S. tariffs are already substantially affecting construction projects globally and the entire ladder of supply. These disruptions could very well be a source of continuing challenges and uncertainty for projects the world over.
Below is a simple checklist that endeavors to provide a practical reference tool to help companies at all levels of the contractual chain for construction projects review the contractual and other legal mechanisms that may be available to them to navigate the current conditions. This checklist is intended to serve as a starting point for evaluating options to mitigate the impacts of changes in tariffs and export controls, but the application and utility of the contractual mechanisms and laws identified here naturally will vary according to the particular contract language and the governing law.
COMMON CONTRACT CLAUSES POTENTIALLY AT PLAY
Faced with substantial unexpected costs or external disruption of any kind, companies should carefully check their existing contracts for any mechanisms that might offer relief.
In addition, if their standard contracts do not contain provisions with clear and acceptable allocations of the risks arising from the current challenges arising from trade policies, companies should consider including any potentially useful tools in future contracts. They should also explore negotiating with their counterparties to find a mutually acceptable reallocation of risk to address the present circumstances.
Price Review or Adjustment: Some contracts, especially those concerning the long-term supply of goods or resources, may allow either party to demand that pricing should be updated, typically by reference to an agreed formula. Clauses of this kind usually respond to changes in circumstances, which might include an increase in costs caused by a material change in tariffs, but may also provide for review and adjustment at set intervals.
Taxes and Contract Price: Many contracts either expressly include or exclude tariffs from the definition of taxes and/or contract price or otherwise identify the party to whom responsibility for such costs is allocated. On projects where tariffs are treated as taxes or otherwise separated from the contract price, care should be taken to ensure that suppliers identify tariffs separately on invoices for goods to ensure documentation of the tariff amount.
Change in Law: Contracts may allow for adjustments when a change in law increases the cost or time required for performance. Subject to the drafting of the relevant clause, this clause could cover the impacts of the imposition of new tariffs and/or increases in the prevailing rates of existing regimes.
Shipment Terms: Construction contracts, especially as one moves down the supply ladder for a project, will often include terms covering shipment of materials and products. Particularly where a supply contract is international, parties may incorporate the International Chamber of Commerce Incoterms (short for International Commercial Terms) to define the rights of sellers and buyers, including the responsibility for paying for and managing the shipment, insurance, documentation, customs clearance and other logistical activities. Special care should be taken in reviewing whether the Incoterms have been incorporated as is or whether the shipment or other terms of the contract modify them. For example, while a supplier outside the U.S. that agrees to supply goods to U.S. customers using the Delivery Duty Paid Incoterm is normally required to pay any U.S. tariffs, if another Incoterm is utilized, the customer/importer typically bears the responsibility for tariff payments unless the contract provides a mechanism to recoup costs from the supplier or modifies the Incoterm to make the supplier pay.
Duty Free Entry: Typically confined to contracts with the U.S. government and downstream subcontracts, these clauses may exempt from tariffs certain supplies that a contractor intends to deliver to the government under the contract, including both end-use items as well as components. Applicability will depend on the particular contract terms, and procedures differ between U.S. Department of Defense contracts.
Controlling Document: Particularly in long-term contracts or master agreements against which multiple change orders, amendments or purchase orders are issued over time, questions can arise as to which document controls the parties’ performance. Boilerplate language that is given scant attention at the time of issuance is often where conflicts in the terms governing allocation of responsibility for taxes, duties, impoundments, as well as shipment, among other things, can be found.
Material Adverse Change: MAC clauses typically allow termination or adjustment of obligations in the event of a material adverse change that threatens a fundamental purpose of the contract. They often appear in, for example, project finance documents and allow the lender, buyer or investor to abort or renegotiate the transaction. Application of a MAC clause will turn on the specific wording used and is highly fact specific.
Force Majeure: Contracts often include provisions that can be triggered when unforeseeable and uncontrollable events that are out of the control of a party hinder or prevent performance. Typical examples are natural disasters, acts of war or certain governmental actions. The applicability of force majeure clauses to the disruption caused by tariffs will turn on the specific contract language. Typically, such clauses offer relief by suspending or extinguishing obligations, extending time or waiving penalties that might otherwise be due, and limiting or excluding liability; as such, force majeure may not, depending on the particular language of the clause, offer a vehicle for reallocating increased costs resulting from tariffs, but could nonetheless provide schedule relief or similar adjustments to mitigate nonmonetary tariff impacts. Note as well that such relief may only be available if the affected party meets specified notice requirements, however.
Compliance With Applicable Laws: Contracts between sophisticated entities invariably include boilerplate language obliging all parties to comply with all applicable laws, including sanctions and export controls. Adequate resourcing and attention to compliance functions may be required to ensure that restrictions are not breached given the evolving landscape. Moreover, in some cases, these clauses will also specify remedies, including renegotiation or termination, for when such compliance hinders or otherwise prevents performance in accordance with the contractual terms.
Termination: Some force majeure and other similar contract clauses give one or both parties the option to terminate or rescind the contract in the event of a lengthy interruption to performance. Moreover, extreme changes in the economics surrounding continued performance may lead to the inability of one or more parties to continue performance or voluntary cessation of performance when doing so becomes economically unviable. In such scenarios, the termination provisions—whether for convenience, cause or otherwise—should be closely studied for the conditions to termination, process and, particularly, valuation at termination. Determining the amounts owed when a contract is terminated prior to completion is often the source of substantial disputes, especially about differences on the state of progress and the value of partially completed works.
Notice Requirements: For many of the points flagged in this checklist, companies should make sure they are aware of and, where possible, adhere to any notice requirements, which are often stringent, plus any related monitoring and updating obligations.
Claims, Extensions of Time and Variations: Notices of any claims arising out of impacts related to the America First Trade Policy must be carefully examined for compliance with contract requirements. Difficulties may arise where contract documents are ambiguous as to whether an event can be both a force majeure event and give rise to a compensable variation or extension of time.
Suspensions: Most construction contracts allow owners/employers to suspend work in certain circumstances. If the suspension is not the result of a breach by the suspended contractor, it may be entitled to an extension of time and costs. Participants in some projects may be considering suspension if, for example, the increased cost of materials due to unexpected—and unexpectedly large—increases in tariffs has made their existing arrangements unviable. Suspension is easier to contemplate than to carry out, however, and there are often disputes over suspension-related costs and impacts. Proper management and documentation of suspensions and their impacts warrant careful attention when responding to trade disruptions.
Labor, Supplier and Materials Requirements: Many projects have both contractual and mandatory legal requirements governing the proportion of labor, materials and equipment that must be procured locally or otherwise restricting procurement of specified products from certain regions. Disruptions in the supply chain may require waivers or exceptions from parties or regulators and possibly even redesigns where the inclusion of specified materials or products makes a project unviable. Additionally, expedited substitutions of approved suppliers and materials may be required.
Financing Requirements: For some projects, the current turbulence in global markets may have rendered invalid the base case financial models on which financing was procured. Additionally, review of financial covenants may be prudent where substantial, unforeseen cost increases cause parties to seek additional financing.
Insolvency: For some companies within the supply ladder, especially for projects that are impacted not only by cost increases arising from changes in trade policy but also in funding policy, such as in U.S. projects focused on renewable energy, their ability to survive the changes may come into question and insolvency may be the next step. While many contracts include provisions concerning the notice and the parties’ rights and remedies in the event of a party insolvency, statutory regimes may preempt certain contractual remedies, including the exercise of set-offs. Therefore, careful review of relevant contract provisions and specific facts together with consultation with qualified counsel is essential if insolvency becomes a concern.
GOVERNING LAW CONSIDERATIONS IN COMMON LAW AND CIVIL LAW JURISDICTIONS
Doctrines of Frustration, Impossibility of Performance and Commercial Impracticability: Particularly in the absence of contractual clauses that specify the parties’ rights and remedies where unforeseen events impact performance, governing law may provide relief from performance or liability or allow cancellation or revision of the contract under doctrines including “frustration of purpose,” “impossibility of performance” and “commercial impracticability.” These doctrines can be notoriously difficult to rely on, but parties should be aware of variations in thresholds, particularly as between common law and civil law jurisdictions. The latter tend to provide more avenues for recognizing hardship and allowing responsive adjustments to the parties’ contractual arrangements. The doctrine of “illegality”—particularly of supervening illegality—may excuse performance in circumstances where performance that was legal at the time of contract execution becomes illegal as a result of a change in law, including for example, changes in export controls.
Judicial Revision Because of Exceptional Circumstances: Many civil law jurisdictions allow a party to apply for revision of contractual obligations (either by a judge or by an arbitrator) where exceptional circumstances make contract performance so excessively onerous as to threaten exorbitant loss to the performing party. Where these laws apply, they are typically mandatory law that cannot be negated by contract and, thus, could be a great help if trade disruption has not necessarily prevented performance (as typically is required for relief under force majeure clauses), but has made it economically more burdensome to such an extent that the risk allocation between the contracting parties must be reworked by the court or tribunal in a fair and equitable way. Revision, however, can result in risk allocations that neither side would have agreed.
OPPORTUNITIES FOR NEGOTIATING SOLUTIONS
Figuring out how the existing contractual risk allocation does or does not address the current challenges is the first step. In many cases, however, the best solutions may arise from good faith negotiation between and cooperative problem solving by the parties to contracts and participants in projects, all while keeping an open mind to solutions that may be extra-contractual.
For construction projects such adaptations might include:
Identifying design changes and substitutions to circumvent interruptions in the supply chains. Doing so not only helps mitigate any trade-related disruption on particular aspects of the work, but also may give the parties more control over allocating any cost impacts of such measures than the existing contract framework may provide.
Identifying new work sequences, which might include suspensions to certain parts of work and acceleration of other areas that can more productively be pursued under the current circumstances.
Coordinating on immediate schedule mitigation measures to address near-term impacts and working together on a full schedule revision if necessary. These steps can provide the parties with better control over the progress of critical works and enable them to avoid or mitigate negative financial impacts.
Given the current climate of change characterizing U.S. trade policy and the uncertainty regarding its future, it may be beneficial on particularly complex projects to establish a multi-entity task force to communicate about and anticipate potential project disruptions that may result from the evolving trade and export controls landscape. Such an effort allows interested parties to collaborate and work more proactively to reduce any damaging consequences for the project and engage in ongoing dialogue as to appropriate allocations and mitigations of the risks associated with changing policy. An added benefit of such collaborative efforts is that they often reduce the likelihood of disputes down the road and other unwanted downstream effects, for example on financing and returns on investments.
The evolving landscape of the America First Trade Policy presents significant challenges and uncertainties for construction projects. As companies grapple with increased material costs, supply-chain disruptions and potential project delays or cancellations, proactively addressing these issues can go a long way to reducing expensive disputes. Utilizing the checklist provided, companies can review contractual mechanisms to mitigate the impacts of the changes in trade policy and navigate the current conditions effectively.
While contractual provisions offer a foundation for managing disruptions, engagement and collaboration remain paramount. Through good faith discussions and cooperative problem-solving, parties can explore extra-contractual solutions that may prove beneficial to project and party alike. Identifying design changes, optimizing work sequences and coordinating schedule mitigation measures are just a few strategies that can help maintain project momentum and financial stability.
Moreover, establishing a multi-entity task force to anticipate and communicate potential disruptions can foster a proactive approach, reducing the likelihood of disputes and enhancing project outcomes. As the trade policy landscape continues to shift, stakeholders in construction projects must remain adaptable and vigilant, leveraging both contractual and collaborative tools to ensure successful project execution and minimum costly disputes.
In sum, navigating the impacts of changing trade policies on construction projects requires a multifaceted approach that combines contractual review, strategic negotiation and proactive collaboration. By doing so, parties can better position themselves to overcome challenges and achieve project success amidst the uncertainties of the current trade environment.
SEE ALSO: EXECUTIVE DECISION: AN ANALYSIS OF TRUMP EXECUTIVE ORDERS
