Tariff on Imported Steel Will Mean Increased Construction Costs

Construction Litigation   |   Construction   |   March 20, 2018
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As you probably know, President Trump recently announced a tariff on steel and aluminum imported into the United States, to take effect March 23. Imports from Canada and Mexico will be exempted from the tariff. Other countries may be added to the exemption list. Regardless of which countries may be exempted, most experts agree that the tariff, once implemented, will likely result in increased prices for steel and aluminum — not only for non-exempt imported materials, but for domestic and exempted materials as well.

Steel and aluminum are necessary and intricate components of essentially all construction projects. They are not only used directly as building materials for the construction of projects themselves, but also indirectly in the manufacturing of construction machinery and equipment. If the tariff takes effect, market experts anticipate price increases for not only all steel and aluminum materials, but also for all equipment and machinery that incorporates them. Such increases are likely to have a significant impact on overall construction costs, not just for new projects, but also for those already underway.

How to protect against these impacts

For new projects, contractors should consider including contract provisions that account for uncertainty in prices by allocating the risk to the owner, or allowing for a reasonable modification of the contract price in the event of significant unexpected increases. Alternatively, contractors should consider adding sufficient contingencies to their pricing to cover this uncertainty. 

For ongoing projects, the risk of price increases is more immediate and difficult to avoid. The first step is to review the applicable contract to determine if there are provisions that address unforeseen increases in the price of building materials. For example, some contracts may have escalation or price adjustment clauses or express qualifications to the price proposal that might account for fluctuations in commodity or labor prices. In addition, there may be a change in law clause or a force majeure provision that might apply to this new tariff situation. All contract provisions should be reviewed to see if any can be used to allocate the risks for these unexpected price increases to the owner.

Carlton Fields’ Construction Practice Group can help clients navigate this uncertain terrain. We can draft contract provisions that protect against the effects of unexpected price increases, examine the contracts on existing projects to determine if there are ways to seek equitable adjustments, or consider other possible alternatives to avoid absorbing the brunt of these unexpected price increases.

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