Businesses of all kinds throughout Florida and the rest of the country that depend on products from outside the U.S. are dealing with an added level of anxiety caused by the uncertainty around tariffs. The potential threat of future tariffs, as well as those already in place, is keeping some overseas companies from shipping products to the U.S. and increasing the price of those that are shipped.
Construction businesses are especially vulnerable to tariff increases as well as the general unpredictability of the current economic climate. That can make preparing and negotiating contracts particularly challenging. For example, it can be difficult, if not impossible, to accurately estimate the cost for a project or commit to a completion date when it’s unknown how much the materials will cost when they’re needed – if they’re available at all.
Some construction professionals are considering including this tariff unpredictability in the force majeure clauses of their contracts. These clauses are most commonly used – particularly here in Florida – to protect construction companies if a natural disaster like a hurricane upends a project. However, they can potentially extend to other events if they’re in fact unforeseeable – from a labor strike to a war, as well as a sudden and unpredictable shortage of materials or supply chain blockage.
Examples of language to include
Earlier this year, a Harvard Business Review article recommended that business owners who might be affected by unpredictable tariffs and overseas companies’ response to them include language addressing the following:
- “Material changes in trade policy or tariffs.”
- Thresholds for tariff increases (for example, anything above 10%) that will require the parties to share the added cost.
- A “should-cost” provision to “base contracts on expected costs with predefined price variation triggers, ensuring suppliers don’t exploit tariff hikes for excess profits.”
As with all potential unforeseeable circumstances addressed in a force majeure clause, it’s still preferable to seek ways to prevent a negative effect on a project if an unexpected tariff increase occurs. Having multiple sources for the necessary supplies or products in different countries is one example, if that’s possible.
This is no time to rely on boilerplate contracts. Construction professionals must have sound legal guidance in preparing, negotiating, reviewing and enforcing contracts to help protect their business.