President Donald Trump has announced new 25% tariffs on steel and aluminum imports into the United States. This measure is part of the administration’s strategy to protect national security and address trade imbalances. The tariffs mark a significant escalation in trade policy set to create ripple effects across industries, but few will feel the impact as strongly as the domestic construction industry.
The anticipated tariffs are likely to impose financial challenges on the construction industry by increasing material costs, disrupting supply chains, and extending lead times while the industry adjusts to the changes. Contractors with fixed-price contracts are especially vulnerable to cost overruns, while small and mid-sized contractors with less negotiating power are likely to be hit harder by price increases and supply chain disruptions. Here are some considerations for contractors and suppliers to help them navigate the challenges ahead:
1. Audit Current Projects: Identify contracts most vulnerable to cost escalation or delays and prioritize renegotiation discussions.
2. Revisit Bid Pricing: Contractors may need to adjust bid prices to account for rising material costs and increased risks of delays.
3. Renegotiate Contracts: Proactively work with your customers to renegotiate contract terms, including force majeure and price adjustment clauses for volatile material costs and supply chain impacts.
4. Implement Escalation Clauses: For future contracts, include cost escalation clauses that allow for adjustments if material prices increase beyond a certain threshold.
5. Leverage Force Majeure Clauses: Ensure contracts have a well-drafted force majeure clause to protect against delays and penalties from unforeseen events like tariff-driven material shortages or supply chain disruptions.
6. Pre-Purchase Materials: Explore pre-purchasing critical materials or securing supplier commitments to lock in pricing to minimize exposure to cost increases.
7. Evaluate Design Adjustments: Work with project owners and design teams to modify designs to incorporate alternative or less expensive steel pieces where feasible.
The overall impact on the construction industry will likely include higher project costs, increased risks of delays, and reduced profitability for contractors. Collaboration, strategic planning, and creative cost management will be key to navigating these changes and keeping projects moving.
Originally published on LinkedIn on February 10, 2025.