Tariffs and Construction Projects
What is a Tariff?
A tariff is essentially a tax on imports, increasing the cost of goods crossing borders. For example, if a 25% tariff is applied to a product that originally costs an importer $100, the total price to the customer rises to $125. The additional $25 goes directly to the government imposing the tariff.
These added costs are passed along the supply chain, affecting the final price of goods. In cases where products assembled with parts that cross borders multiple times before reaching consumers—especially during a tariff war—the cumulative cost can escalate significantly.
Tariffs are not always percentage-based; they can also be a fixed dollar amount per unit or a combination of a fixed fee plus a percentage of the product’s value. Regardless of the structure, the financial burden starts with the importer and is ultimately felt by businesses and consumers through higher prices.
Impact on Contract Types
Tariffs can affect all contract types, including lump sum, cost reimbursable, and time & materials contracts. The extent of the impact depends on where materials and equipment are sourced. If an order has already been placed, canceling and switching to a lower-cost supplier may seem like an option—but this comes with its own risks. Will the change disrupt the project schedule? Are there customs or regulatory challenges that need to be managed?
Many contractors and subcontractors have already started notifying owners and project teams that tariff-related cost impacts remain uncertain. However, these warnings indicate a real financial risk. Contracting parties may seek to recover increased costs by leveraging contract clauses such as Taxes & Duties, Economic Price Adjustments (EPA), Price Escalation, Changes in Law, or even Force Majeure, depending on the contract language.
To mitigate risk, it’s critical to understand the terms of your agreements, including any built-in mechanisms for price adjustments. Additionally, being familiar with dispute resolution provisions can help prepare for potential pricing conflicts before they escalate.
Overall Impacts on Projects
Be prepared for higher costs, potential delays, and the need to adjust contract templates to address these uncertainties. Ambiguities in contract language can lead to disputes over price adjustments, making it essential to ensure your agreements are clear and comprehensive.
Switching vendors or suppliers can be challenging, but if it leads to cost savings without compromising quality, it’s worth exploring. Identifying alternative suppliers that meet the same standards can help protect your bottom line while maintaining project integrity.
Supply Chain Management Team
RAM’s Supply Chain Management team supports both internal and external clients by optimizing procurement, purchasing, and contracting processes. If your contract templates or methodologies are outdated, now is the time for a refresh—not just to address tariff-related challenges but also to improve overall contract clarity and execution.
Recurring issues with vendors, suppliers, or contractors may signal the need for a strategic shift. Our team can help identify pain points and implement solutions that streamline project execution. Moving beyond the mindset of “this is how we’ve always done it” can lead to smoother operations, reduced risk, and greater efficiency.
Optimizing your supply chain strategies and methodologies adds tangible value to your projects—let’s start the conversation.
Summary
Tariffs are driving up costs for raw materials and the products made from them—affecting not only project budgets but also personal expenses. With rising costs and shifting trade conditions, project teams must be proactive in managing their supply chains. One key question to ask is: “Where can we source equipment and materials that are minimally impacted?” Keep in mind that alternative sources may come with higher shipping costs, making a strategic sourcing approach essential.
All contract types—lump sum, cost reimbursable, and time & materials—are affected, making it crucial to review agreements for price adjustment mechanisms and potential disputes. Proactively locking in pricing and securing purchases before tariffs take effect can help maintain cost certainty. Additionally, maintaining open communication with suppliers, vendors, and contractors is always a best practice, ensuring smoother project execution regardless of tariff fluctuations.
If you’re not sure where to start, lean on our Supply Chain Management team to help. From refining procurement processes to modernizing contract templates, we provide solutions that enhance project efficiency. If recurring issues with vendors or suppliers are causing disruptions, now is the time to rethink supply chain strategies. Shifting away from “this is how we’ve always done it” can lead to smoother execution, reduced risk, and better financial outcomes.
While the tariff situation remains fluid, staying informed and adapting strategies will help you and your clients navigate these uncertainties. Conversely, if the Canadian Carbon Tax is fully eliminated, we could see cost reductions across multiple goods and services.
Let our team support you in optimizing your supply chain and ensuring project success.
RAM’s Supply Chain Management team is committed to supporting its stakeholders with an uninterrupted flow of materials and services.
We lead full-cycle procurement activities including qualifying suppliers, tendering, evaluation, contract negotiation, and award. Once an agreement is awarded, RAM ensures the requirements of the agreement are being upheld by each party including contract administration up to and including turnover review and contract close out.
Learn more about our services here.