There’s a lot of uncertainty and anxiety right now among business owners who buy parts, equipment and other products from overseas due to the enactment of new tariffs under the new Trump Administration and all the changes that have already occurred as a result of the new tariffs.
Construction and architectural businesses are among those likely to be most seriously affected by tariff and resulting supply chain unpredictability. That can make drawing up contracts for projects particularly tricky. It can be hard to accurately price a project when you don’t know how much materials will cost. It can be impossible to provide a reasonable completion date when you don’t know when or if the materials will arrive.
The unpredictability of tariffs right now has many construction professionals asking if they can be considered a force majeure for purposes of contracts. Force majeure clauses are used to protect the parties to a contract from being penalized if they can’t fulfill their contractual agreements due to unforeseeable events. These can be anything from natural disasters to war – including uncertainty around tariffs.
How to provide contractual protections
A recent Harvard Business Review article recommended that those drawing up contracts in this climate:
- Add language to force majeure clauses that specifically addresses “material changes in trade policy or tariffs.”
- Include specific thresholds for tariff increases (such as anything over 10%) that will trigger a cost-sharing arrangement between the parties.
- Include a “should-cost” provision that will “base contracts on expected costs with predefined price variation triggers, ensuring suppliers don’t exploit tariff hikes for excess profits.”
While contractual protections are important, it’s also crucial for business owners to look for ways to prevent having to use them. This can include finding other suppliers, particularly from different parts of the world, if possible, and having other contingency plans in place.
Now more than ever, it’s important not to rely on boiler plate contracts. All contracts should be drafted and negotiated carefully. They should also be reviewed regularly after they’re signed to ensure that they’re holding up as circumstances change. Having sound legal guidance right now is especially critical for business owners to protect their interests and their bottom line.