By Michelle Redekopp and Andrew Konopelny, MLT Aikins
Potential tariffs and retaliatory tariffs are a hot topic of discussion in the construction industry. MLT Aikins recently held a seminar to discuss a number of considerations for heavy construction companies on how to address the potential impact of tariffs on current and future projects/contracts.
For existing contracts, contractors should be aware of contractual mechanisms that may impact the ability to claim for tariff-related risks, including the following:
- Express terms allocating tariff risks – this can include Incoterms, transfer of title and risk, or GC 10.1 of CCDC 2 (2020). Contractors should ensure that terms addressing tariff risks are dealt with consistently throughout the contract documents, being mindful when inserting “new” tariff clauses where the tariffs and duties are already addressed elsewhere in the contract.
- Changes in Law and the Contract Price – the contract model being used is a helpful starting point on how tariff risk might be dealt with, as fixed price and cost reimbursable/cost-plus models may drive who is responsible for added costs due to tariffs.
- Force majeure/delay – while tariff delays may not been specifically realized yet, if supply-chain impacts arise due to tariff-related uncertainty, there may be situations where force majeure or time-relief clauses in the contract apply.
- Notice requirements – contractors intending to claim additional costs or time relief due to tariff-related impacts should be mindful of any specific notice periods or requirements impacting
- Duties to mitigate – generally speaking, those seeking additional costs on a project have an obligation to mitigate their losses to the extent possible. Some contracts, such as CCDC 2, have express requirements to mitigate costs related to claims for additional claims.
- Termination – in some circumstances, mutual termination may be the best path forward where there are unsolvable tariff-related impacts. However, also be aware of one-way termination provisions such as termination for convenience or termination due to bankruptcy/insolvency. Most termination clauses address how the outstanding project costs are dealt with on termination.
- Duty of good faith – there are general legal obligations to perform contracts honestly and in good faith. In the instance of tariff-related impacts, this may impose higher duties between impacted parties in their performance of the contracts.
On future contracts, contractors should be mindful of how tariff risk is being assigned in procurement or contract documents, and, where allowed/requested by the procurement documents, be prepared to provide tariff pricing or supply chain considerations in their responses.
Generally speaking, the high potential cost impact of tariffs, if realized in the construction industry, will require collaboration throughout the construction pyramid to ensure that projects can weather any tariff-related impacts.
In times of uncertainty such as these, proactive action is important. There are several proactive next steps contractors may consider, including:
- Review project-specific risk for tariff-related impacts
- Discuss mitigation strategies with project counterparts
- Take steps to diversify alternate sources of key materials and supplies
- Review your templates to understand how tariff-related risk is addressed
- Consider how tariffs may impact the solvency of your project counterparts
- Plan for potential delays in sourcing key advisers or labour from the United States
- Engage strategic advisers, including legal counsel, to develop a planned tariff response
MLT Aikins was pleased to present to the MHCA on the impact of tariffs, and looks forward to supporting construction and infrastructure project participants in responding to tariff-related issues.
