Tariffs are not the most beautiful word for the construction industry. Addressing tariffs in existing contracts are difficult in lump sum contracts that do not contain a price escalation clause. Tariffs unexpectedly increase the price of materials while fees and the contract price are fixed lump sum. Alternatively, cost-of-the-work agreements often include a guaranteed maximum price (GMP). Unanticipated material price increases due to tariffs can easily run project costs past a GMP. A profitable project can become a significant loss.
Some remedies for tariff risk may apply to your existing contract – namely, a change in law and force majeure and “change of law” provisions. However, the best way to address tariffs in contracts is to use a price escalation clause in your contracts. The ConsensusDocs 200.1 Standard Price Escalation Amendment provides an industry standard provision that is fair to both owners and builders. This price escalation clause is tied to an objective index, and prices are bilateral, which means lower material prices inure to the benefit of the owner. AGC is providing a webinar on February 27th entitled The Art of Dealing with Tariffs. The webinar will take a deep dive into tariffs and how you can use best practices in your contracts to address tariffs in your contracts going forward and possible remedies in your existing contracts. All registrants will receive access to the recording on-demand as well as a sample copy of the ConsensusDocs 200.1 Price Escalation. Attendees will gain a sense of strategies and specific tactics related to tariffs as well an overview that will give you a big-picture look at the issue. You can also check out the ConsensusDocs Tariffs and Price Escalation Resource Center.