In the ever-evolving construction industry, pricing stability is an illusion. Contractors today are once again bracing for material price spikes driven by proposed tariffs under the second Trump administration. While uncertainty looms, seasoned builders understand that preparation, not panic, is the key to navigating market volatility.
At Paragon Construction Consulting, we’ve spent decades helping developers and contractors protect their projects from unpredictable cost escalations. The good news? There’s already a playbook for managing tariff-related risks.
Lessons from the Past: How Contractors Are Adjusting
History has a way of repeating itself. During Trump’s first term, steel prices jumped 14% following the introduction of tariffs. Then, during the COVID-19 pandemic, material prices became wildly unpredictable, forcing contractors to push for escalation clauses in their contracts. What once seemed like an uphill battle became a necessity—owners had no choice but to acknowledge the need for these provisions.
Fast forward to today, and the industry is once again recognizing the importance of contractual safeguards. While price escalation clauses have seen pushback in recent years, the resurgence of tariffs is reigniting discussions on how best to mitigate financial risk.
Beyond Material Costs: The Real Impact of Tariffs
It’s not just about the money. Tariffs don’t just increase material prices—they delay shipments, disrupt supply chains, and extend project timelines. That means contractors need protection not only for cost increases but also for schedule overruns.
“Even if I can get compensated for increased material costs, how much longer will it take to receive those materials?” says Zack Rippeon, partner at Smith Currie Oles. “Time is money, and without proper contract provisions, contractors risk losing both.”
The Best Contract Strategies to Reduce Risk
So how do you protect yourself? Here’s what works:
1. Material Escalation Clauses
These clauses allow for price adjustments based on market fluctuations. They were once a hard sell, but after the pandemic, many owners are more open to their inclusion. Industry-standard contracts, like those from ConsensusDocs, now include material escalation addendums.
2. Change-in-Law Provisions
Tariffs qualify as government-imposed costs, which means they can often be negotiated under change-in-law clauses. If a tariff is enacted after contract signing, a well-drafted provision can allow for compensation.
3. Force Majeure Clauses (Use with Caution)
While force majeure clauses cover unforeseen disruptions, they typically provide schedule relief—not financial reimbursement. Contractors should be wary of relying solely on this provision for tariff-related costs.
4. Risk-Sharing Agreements
A growing trend is risk-sharing between owners and contractors. For example, an agreement might state that the owner covers the first 5-10% of a material price increase, while the contractor absorbs anything beyond that.
5. Cost-Plus and GMP Contracts
Lump-sum contracts leave contractors fully exposed to price fluctuations. Instead, cost-plus or Guaranteed Maximum Price (GMP) structures offer more flexibility, allowing for price adjustments under specific conditions.
Breaking the Stalemate: What Owners Want
It’s no secret—owners resist tariff-related clauses. They see them as introducing cost uncertainty into their budgets. But ignoring the problem doesn’t make it go away. Contractors who insist on price escalation protections may lose bids to competitors who don’t—but that doesn’t mean they should back down.
Instead, contractors need to present risk-mitigation strategies as a win-win. Transparency and shared financial responsibility can keep projects viable while protecting both parties from catastrophic cost overruns.
A Smarter Way Forward
At Paragon Construction Consulting, we help owners and contractors navigate contract negotiations to minimize exposure to market volatility. Tariffs will come and go, but smart contract strategies ensure that your project remains on track—on time and on budget.
Have questions about protecting your next project from material cost volatility? Let’s talk. Our team is here to help you build smarter in uncertain times.
