As tariff policies fluctuate, legal experts highlight the importance of contract structures in shielding construction businesses from rising costs.
Published: April 24, 2025
As the U.S. construction industry navigates rising material costs amid a volatile global trade environment, legal experts are urging contractors to take a closer look at their contracts. With new import tariffs threatening to raise project expenses significantly, the right contractual language may be the key to mitigating financial risk.
Mason Hester and Austin Moorman, construction attorneys at the Dallas office of Munsch Hardt, emphasize that contract type can determine whether a contractor absorbs cost increases—or passes them on.
Understanding Your Options: Cost-Plus, GMP, and Lump Sum
In the current climate, cost-plus contracts are emerging as a strategic choice. These agreements allow contractors to bill the project owner for actual costs incurred—potentially including those related to new tariffs—plus an agreed-upon fee. This structure provides a buffer against unexpected spikes in material costs.
However, Hester cautions that even under cost-plus terms, contractors must exercise diligence. “There’s often an expectation to minimize costs reasonably, and not every tariff-related increase may be reimbursable,” he said. Additionally, if the contract includes a guaranteed maximum price (GMP), and costs surpass that ceiling, the contractor may still be on the hook.
Conversely, lump sum contracts pose a greater risk. These agreements lock in a fixed project price, meaning contractors typically bear the burden of any post-signing cost increases, including those triggered by tariffs. “In states like Texas, unless your contract specifically includes a price escalation clause, the contractor is stuck with the numbers agreed to,” Moorman explained.
Leverage Force Majeure and Escalation Clauses
Contractors should also review force majeure clauses for potential relief. While not always explicitly referencing tariffs, some clauses may be broad enough to cover government-imposed trade actions under terms like “other causes beyond the contractor’s control.”
The widely used American Institute of Architects (AIA) A201 contract, for example, doesn’t mention tariffs directly. But language in Section 3.6 specifies that contractors are only responsible for taxes in effect when the contract is signed. Some legal experts argue this could be interpreted to exclude unexpected tariffs introduced afterward.
Don’t Forget Documentation
Regardless of contract type, contractors must document increased costs with precision. Supplier statements, pricing histories, and records of cost-control efforts all strengthen the case for relief, whether negotiating a change order or preparing for a legal challenge.
Moreover, it’s critical for all relevant contract terms—especially price adjustment clauses—to “flow down” into subcontract agreements. This ensures that subcontractors can also recover added costs, but only if the primary contractor secures similar concessions from the project owner.
Plan Ahead in Future Negotiations
If a contract has yet to be signed, now is the time to prepare. Contractors should negotiate explicit tariff language into force majeure and price escalation clauses and advocate for broadly worded terms such as “government actions” to provide future flexibility.
“Tariffs are just one more wrinkle in today’s construction landscape,” Hester noted. “But with foresight and well-crafted agreements, contractors can avoid shouldering all the risk.”
As trade policies continue to evolve, staying proactive in contract management is not just smart—it’s essential.
