Tariffs! What Do I Do to Minimize Any Adverse Impact on My Company?

In this article, we will discuss the recent updates from the federal government related to tariffs, an important (but often overlooked) concept that can impact how many businesses, including construction companies, operate in California.

What Are Tariffs, Anyway?

Tariffs are taxes the government imposes on foreign goods. So when a foreign good is being brought into the United States, the United States government will impose this tax on the good before it can be brought into the country. Tariffs have a direct impact on the price of imported goods from countries that have a tariff placed on them.  This can lead to higher prices. Consumers are not the only ones who will pay the price – businesses that rely on goods and materials sourced from outside the U.S. (including construction materials such as lumber and steel) will be impacted by costs that are passed on.

What Is The Latest With Tariffs?

On April 2, 2025, President Donald Trump announced 0% baseline tax on all imports as well as steeper “reciprocal tariffs” on approximately 60 countries to go into effect on April 5, 2025. On April 9, 2025, President Trump suspended many of the steeper tariffs that were in place for 90 days but maintained the 10% baseline on almost all global imports.

Much uncertainty remains with respect to these tariffs, particularly related to what happens after the 90-day pause ends. It is important to stay apprised of these changes.

Most recently on May 25, 2025, the President said that he would postpone imposing 50% tariffs on the European Union until July 9, pending his get together with European leaders to negotiate further. 

How Will Tariffs Affect My Construction Business?

As a contractor, you should be aware that tariffs can have a large impact on the construction industry as a whole and therefore on your business. Construction materials like aluminum, steel, timber and wood may be subject to price changes, and disruptions in the supply chain can cause delays that may cause scheduling issues for your business.

Be sure to take advantage of the 90-day pause on the steep tariffs to allow yourself time to take measures to protect yourself from changes in a volatile market, as discussed below.

Review and Update Contracts:

Updating your existing contracts is a great way to ensure that your business is protected from incurring extra liability or costs because of these tariffs. Specifically, be sure that you are evaluating whether your company needs protection related to the following parts of your contracts:

a. Price Escalation Clauses

Consider revising existing contract provisions to include specific language related to cost increases and/or a “price escalation clause” that references the increased cost for supplies and/or materials as a result of the tariffs, including which party is responsible for incurring those costs. This is a smart way to remain protected from bearing an unjust proportion of the changes in price and prevent any disputes. Price escalation clauses are used to allow for adjustments of contract prices in response to changes in market conditions, such as inflation or raw material price changes. On top of dire costs from tariffs being included in this provision, this clause may also include any indirect costs arising from tariffs like delays or scheduling issues that may result.

These clauses may have to be negotiated for each new contract to make sure the other side will agree to them.  The trick in these provisions is not to make them fair to both sides not one-sided so they would not be held invalid by courts, in case of a dispute.

b. Unforeseen Material Shortage Delays

Clauses informing customers of the potential for unforeseen shortages of essential materials, and resulting delays, are important to protect your business from circumstances out of your immediate control. Informing customers of the potential for delays at the time of contracting sets your business up for success.  On the other hand, if you are signing contracts with public entities or large prime contractors, negotiating fair delay clauses and avoiding liquidated damages become essential to avoid undue risk to your company.

c. Force Majeure Clauses

Force Majeure Clauses are present in almost every construction contract. They are a way for parties to be relieved of performance obligations when any unexpected event beyond the parties’ control occurs, i.e. an earthquake, unexpected flood, etc. Rather than having a broad Force Majeure clause that may be subject to interpretation in case of disputes on the inclusivity of tariffs as an unexpected event, including language that expressly references tariffs as unforeseen events would further ensure that you are protected from a sudden tariff implementation that could impact your performance of the contract for a project in a major way.

d. Substitution Clauses

Some owners may want to include specific materials they prefer to be used for a project in contracts. During times such as now, when various factors including tariffs may make it difficult to comply with specific material sourcing requests, it is a good idea to include a provision that allows for the substitution of materials with similar ones from different sources, if a specific supply avenue is no longer available or poses significant price increases.

So, What Should I Do?

We suggest that you should be proactive and take steps now to minimize the impact of any adverse conditions on your company.  You should start with your contract.

Why should I worry about the legalese in a contract?

Do not ignore the significance of contracts in your work; when things go wrong and your company finds itself in a dispute, whether in a lawsuit or not, contracts control duties and responsibilities of the parties.  The provisions that you and your office focus on, usually involve facts of the project: scope of work, prices, timelines, etc.  But the provisions that your attorney focuses on involve the rights of the parties in the future and what can happen when things go wrong.  For example, how to properly transfer risk to another party that should bear it; how to make sure you do not get stuck with one-sided and unfair responsibilities at times when a dispute arises and how to minimize any impacts that could jeopardize your company.

• If you sign contracts that are provided to you by owners, including public entities or prime contractors;
  • Have the contracts reviewed by your attorney to make sure the contract is updated for the most recent laws and the economic and political conditions of the country, and
  • If the contract is not updated, bring the risks you are facing to the other party’s attention and try to negotiate fair provisions.
• If on the other hand, you are supplying the contracts or subcontracts, ask your attorney to review and make changes to update these contracts for the current economic and political conditions.

What about the jobs my company is performing now?

Have your attorney review the contract you signed for the job you are currently performing for risks arising from the current situation and reach out to the other party to try to negotiate amendments to the original contract to make it fair.  This requires finesse and a good working relationship with the other party.  We advise our clients to keep communicating with the other party and develop a good relationship with the significant, decision-making people on the other side. We are all human and humans are naturally more flexible towards those with whom they have developed a good relationship.

At the job site, make sure your superintendents, project managers and other employees document everything in writing, take plenty of photos and confirm handshake agreements with follow up emails.  These documents go a long way in your attorney’s ability to help you at times of trouble.

Additional Resources

Consider consulting an expert on domestic/international trade to see if changes can be made to your suppliers that would limit potential rises in cost for required materials. Tariffs are complex, and meeting with a professional to analyze the price changes that will happen or have already happened is a good way to be proactive. Building a diverse range of suppliers will allow you to adapt to any obstacles that may come about. Finally, contact your attorneys for further information, to assess the risk in your specific situation, and to make changes to your contracts.