Managing tariff volatility in construction contracts

The U.S. construction market is facing a new level of uncertainty driven by international trade decisions as tariffs become more frequent and unpredictable. Few factors unsettle a construction budget faster than uncertainty. When that uncertainty stems from tariff policies—where prices for essential materials can rise sharply with little warning—the impact is felt across the industry. Tariff volatility disrupts finances, supply chains, and project timelines, placing profitability and stability at risk.

The problem goes beyond cost increases. The unpredictability of tariff changes—sudden, inconsistent, and lacking clear indicators—destabilizes contracts and creates financial exposure. Today’s construction agreements must address tariff volatility directly, through provisions that adapt to shifting conditions.

Global Trade Developments and Their Effects

Recent trade developments have only reinforced the need for proactive planning. The new framework between the United States and the European Union sidesteps a proposed 30% tariff that would have significantly affected import-reliant sectors. Still, it imposes a baseline 15% duty on most EU goods, including semiconductors, precision systems, and building components used in complex mechanical, electrical, and plumbing systems. European manufacturers are likely to pass on added costs, and U.S. contractors dependent on those imports may be forced to adjust once again.

Outside the EU, tariffs are raising material costs and affecting supply chains. In the U.S., the government has imposed duties on imports from China, Mexico, and Canada, including a 25% tariff on steel and aluminum. These tariffs have increased prices for construction materials like framing, wiring, HVAC systems, and finishing materials.

The U.S. is also considering new tariffs on copper and lumber, which are important for plumbing, electrical systems, and structural work. If approved, these could lead to further costs and delays.

Some countries have responded with their own tariffs on U.S. goods, adding to trade uncertainty. At the same time, investigations into semiconductors and critical minerals like lithium and cobalt may result in more trade restrictions. These materials are essential for technology and energy projects, and any new duties could affect availability and pricing.

Case Studies: Real-World Tariff Impacts

The 2025 steel and aluminum tariffs have already reshaped project economics across the U.S. Rebar prices surged over 26% to $1,240 per ton, adding upwards of $14,000 to the cost of a typical single-family home. Mid-sized firms like AlphaUSA, which rely on Canadian steel for fasteners, have absorbed monthly losses of $250,000 due to the absence of escalation clauses. Meanwhile, in Texas, distributors such as RM-Metals have begun stockpiling copper tubing after the announcement of a 50% tariff, citing customer reluctance to absorb the added cost. HVAC installations have been delayed by weeks as buyers cancel orders or wait for regulatory clarity. The uncertainty has prompted companies like Aviva Metals—the largest U.S. manufacturer and distributor of copper alloys—to put transactions on hold. 

“Does it affect everything with copper in it, or is it just pure copper or copper cathodes? Really nothing is defined,” said Roger Deines, Aviva’s Houston-based purchasing manager. “We can’t make any real business decisions until it’s all defined.” These examples underscore the urgency of incorporating tariff-specific escalation language into construction contracts.

Economic research also confirms that the effects of tariffs are often delayed and uneven. “What’s lost in translation is even as these deals are being cut, the eventual tariff rate is likely to peak around 20%, which is up a lot from below 3%,” said Diane Swonk, chief economist at KPMG. Although many expect tariffs to have an immediate effect, Swonk notes that implementation tends to be irregular, and the full impact can take time to work its way through supply chain.

Legal and Contractual Strategies

Owners and contractors must now account for material cost increases caused by changes in trade policy. Estimators must choose between increasing bid prices—which may make the bid less competitive—or keeping prices low and risking losses if tariffs are imposed later. This uncertainty raises an enduring question in construction: who should bear the burden when material prices rise unexpectedly?

Lump sum and guaranteed maximum price arrangements are particularly vulnerable to tariff impacts unless they include escalation clauses or contingency allowances. Cost-plus and time-and-materials formats offer greater flexibility but may not be suitable for competitive bidding situations. Owners and contractors need to consider adding tariff-specific language to bid documents and agreements—covering renegotiation triggers, cost tracking procedures, and dispute resolution.

Contract strategies are evolving to address tariff-related price increases. Price-adjustment clauses allow contracts to be revised when material costs rise. Material substitution helps maintain budgets by using lower-cost alternatives. Procurement terms now include phased purchasing and alternative sourcing to manage expenses. Some contracts also allocate tariff-related costs between the parties to reduce financial strain.

Specific Contract Clauses for Tariff Protection

If new tariffs are introduced after a contract is signed, they might count as a “change in law.” A change in law clause lets either party adjust pricing when new government rules—like tariffs—directly affect the cost or ability to perform the work. If the contract defines these changes clearly, it protects contractors from absorbing unexpected costs. Without that language, contractors may find themselves responsible for additional expenses without a clear mechanism for relief. To avoid confusion, contracts should spell out what counts as a change in law and explain how pricing or scope can be adjusted.

Force majeure clauses also merit attention. While traditionally defined as unforeseen events beyond a party’s control that prevent contract performance, most standard clauses offer no relief for tariff-related disruptions. Tariff implementation typically affects the cost of performing work—not the ability to perform it. Conventional definitions often miss this distinction. To offer meaningful protection, force majeure language should be drafted to specifically encompass government actions—including new tariffs—and their economic impact.

A price escalation clause helps manage unexpected cost increases from tariffs during a project. For instance, if the U.S. government introduces a 25% tariff on imported structural steel mid-contract, the clause enables the contractor to seek adjustment to the contract price to account for the additional expense. Typically, such a clause requires documented evidence of the tariff’s impact and clearly specifies how the increase is calculated and approved.

These clauses are especially prevalent in long-term or fixed-price contracts such as lump sum or guaranteed maximum price agreements. This upfront pricing structure leaves contractors exposed to unanticipated price fluctuations. By allowing for adjustments when material costs exceed initial expectations, escalation clauses serve as a protective measure for contractors facing volatile market conditions.

The Path Forward

As tariffs fluctuate, the construction industry faces growing cost uncertainty. Tariffs can increase prices for essential materials like steel, aluminum, copper, and finished goods, leading to frequent and unpredictable cost changes. To address this pricing instability, the industry must revisit how risk is allocated and ensure contracts include clear, tariff-specific provisions—such as price-adjustment clauses and defined mechanisms for cost sharing. Contracts that account for tariffs can reduce surprises and help keep projects on schedule and within budget.