Devine Millimet | NH Law Firm

Time to Dig Out Your Contracts – Steel Tariff Causes Uncertainty in the Construction Industry

Tough new tariffs on steel imported from Canada, Mexico and the European Union are creating uncertainty in the construction industry regarding who will ultimately bear responsibility for the increased costs. 

On May 31, 2018, President Trump imposed a 25% tariff on steel imports from Canada, Mexico, and the European Union. These tariffs are expected to lead to sharp increases in the cost of steel and other related materials, which is creating uncertainty in ongoing projects regarding which party is going to bear responsibility for the price escalation. This is leading companies to closely examine their contracts.

While the initial instinct may be to argue that the new tariffs constitute a force majeure event, several courts have held that an increase in material cost is not a force majeure event. For example, in Langham-Hill Petroleum Inc. v. Southern Fuels Company, 813 F.2d 1327 (1987) the Fourth Circuit held that a force majeure clause was not intended to act as a buffer against the normal risks of a contract, and that a change in the market price of a commodity was a normal risk of a fixed price contract. 

For ongoing projects, contractors need to closely examine the language in their contract. Even though a generic force majeure provision may not provide protection, the express language of your particular contract may offer grounds to seek an equitable adjustment or a change order.

For future projects, contractors will inevitably factor the materials price hikes into their bids. This will create its own set of problems. Not only will the cost of projects increase, but also the new tariffs may be lifted at any time which could create a windfall for contractors if the material costs return to their pre-tariff levels. The solution may be to work with the other parties to carefully structure all of the contracts to include provisions such as escalation clauses in order to address how the parties will address the impact of future government actions such as tariffs and quotas.

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