Publication

The Politics of Tariffs in Construction

Published:

March 20, 2025

Author(s):

• John V. O’Dea, KC

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While most construction contracts address taxes and tariffs, the current political climate respecting tariffs can impact both existing contracts and the future of procurement. Here’s how.

Existing Contracts

Using the CCDC2 2020 as a guide, these areas can be impacted in a tariff war:

GC 3.4 – Construction Schedule. The construction schedule could be affected where tariff issues force the contractor to resort to another supplier and the alternate supply is not immediately available.

GC 6.3 – Change Directive. A change pursuant to a change directive is limited to a list of cost items, including “taxes and duties other than value added taxes” (GC 6.3.7.14). This could trigger a contractor to seek a change in the price due to a tariff change.

GC 6.5 – Delays. Delay issues can affect the construction schedule when disputes arise due to debates over tariffs, particularly when the impact on the contract price is high. Owners will want to tighten up the contract to exclude tax/tariff issues as a reason for a delay claim.

GC 6.6 – Claim for Change in Contract Price. This provision permits the contractor to seek a change in price for any reason that is beyond the contractor’s control (GC 6.5.3.4). It may result in a dispute resolution under GC 8.3.

GC 10.1 – Taxes and Duties. This clause has frequently been deleted from contracts through the supplementary general conditions: “Any increase or decrease in the costs to the Contractor due to changes in taxes and duties after the time of the bid closing shall increase or decrease Contract Price accordingly.”

GC 10.2 – Laws, Notices, Permits, and Fees. In particular, clause GC 10.2.7 provides that when there is a change in laws, the contractor can seek a change in the contract price.

In addition, the requirement for notice under many clauses of the contract will require strict and timely compliance to ensure the impact is addressed. The frequent back and forth on tariffs will necessitate vigilance on notice provisions to ensure issues are identified and addressed.

Finally, many of the standard form contracts do not make provision for a frustrating event that could bring about the ability of either party to seek to terminate the contract. The event that creates the frustration must not have been reasonably foreseeable and must directly impact a material aspect of the contract.

Careful reading of contract terms is essential. Equally essential will be the drafting of supplementary general conditions to address any of the above issues.

Future Procurement

In future, owners will need to ensure that the front-end documents are reflective of an era of turbulence in the tariff world. You may need to carefully examine the following elements in a procurement:

Bidders. Whether to include preference provisions to exclude or prefer bidders, e.g., Canadian only.

Trade Agreements. Have regard for any applicable internal or international trade agreements.

Required Information. Ensure that the information required covers issues that would be pertinent in addressing tariff fluctuations. This would also be part of the evaluation matrix.

Qualification Criteria. Establish qualification criteria to address issues that have an impact on tariffs.

Please contact your McInnes Cooper lawyer or any member of our Construction Law Team @ McInnes Cooper to discuss how tariffs impact your construction contracts and future procurement.

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