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Private projects, state and local procurements, and international work can allocate the risk differently. To determine the answer on a particular project, read the executed prime contract, incorporated clauses, subcontract flow-downs, governing-law provision, and the facts surrounding the affected material and import.
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What decides who pays
Start with the signed contract and identify its price structure. The same tariff can produce different outcomes under different contract types:
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| Contract structure | Typical starting allocation | What can change the result |
|---|---|---|
| Firm-fixed-price or lump sum | The contractor generally performs for the stated price and bears cost changes within the agreed scope. | An EPA, tariff or change-in-law clause, owner-directed change, or another express adjustment right. |
| Unit-price | Payment follows the contract unit rates and measured quantities. | Repricing language, quantity adjustments, an EPA, or a change to the work or material requirements. |
| Cost-reimbursable | Allowable, allocable and properly documented costs may be reimbursed under the cost terms. | Definitions of reimbursable cost, unallowable duties, fee rules, and approval requirements. |
| Guaranteed maximum price (GMP) | The contractor operates within the GMP unless the agreement provides an exception. | Owner changes, a stated escalation allowance, shared savings/risk terms, or a negotiated amendment. |
| Adjustable or index-based price | The stated formula determines increases and decreases. | The specified index, baseline, covered items, timing and caps or floors. |
Read related provisions together rather than relying on a heading. A clause labeled “taxes” may address duties; a change-in-law clause may cover a new import charge; an escalation clause may cover only named materials or an index. Definitions, exclusions, precedence language and the order of contract documents can be decisive.
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The U.S. federal construction baseline
Firm-fixed-price is the default approach
Federal Acquisition Regulation (FAR) 36.207 provides that firm-fixed-price contracts generally shall be used to acquire construction. The rule also recognizes fixed-price contracts with economic price adjustment when that approach is customary for the work, when omitting it could deter a significant number of firms from competing, or when a fixed price without adjustment would force unwarranted contingencies into bids.
That federal baseline does not make every federal construction contract firm-fixed-price, and it does not decide a private dispute. It does explain why a contractor normally cannot shift a later tariff to the agency without a contractual mechanism.
What an EPA clause does
FAR 16.203 describes a fixed-price contract with economic price adjustment as one that allows “upward and downward revision of the stated contract price upon the occurrence of specified contingencies.” The contingencies can be tied to established prices, actual specified labor or material costs, or identified labor or material indexes. The structure is intended for situations in which market or labor conditions may change during an extended performance period and the relevant risk can be identified and priced separately.
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An EPA clause is therefore a formula and a process, not a blanket promise to reimburse every cost increase. The contract must contain the clause, the affected item must fall within its scope, and the event must satisfy the stated trigger. FAR Part 52 contains clause language addressing notice and revision of listed labor or material prices; the exact clause number, schedule, incorporated text and any agency tailoring must be checked in the contract.
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How to test whether a tariff increase is covered
Use the following questions in order. A “yes” to one question does not eliminate the need to answer the others.
1. Is there an express risk-allocation clause?
Look for “economic price adjustment,” “price escalation,” “tariff,” “customs duty,” “import duty,” “tax,” “change in law,” “government action,” “force majeure,” or a named material allowance. Confirm that the provision is actually incorporated into the executed agreement, not merely included in a bid form, proposal note or draft amendment.
2. What event activates the adjustment?
The trigger might be enactment of a law, publication of a tariff schedule, the tariff’s effective date, import entry, a supplier invoice, a purchase order, delivery, or the contractor’s actual payment. A clause can distinguish a tariff known at bid or award from one imposed afterward. Record the relevant dates and compare them with the contract’s baseline date.
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3. Does the affected material fit the description?
Check the material specification, grade, quantity, country of origin, tariff classification and approved source. A clause covering “structural steel” may not cover fabricated assemblies, accessories or a substituted product. Some provisions apply only to listed materials or to the portion of work remaining after the triggering event.
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4. What is the calculation method?
The adjustment may use the documented incremental duty, an identified index, an established market price, or a formula stated in the schedule. Determine whether the baseline is the bid price, award-date price, a quoted supplier price or another reference. Check whether freight, brokerage, storage, financing, overhead and profit are included or excluded. Do not assume that the entire change in landed cost is recoverable.
5. Are increases and decreases treated symmetrically?
Many EPA structures permit both upward and downward revisions. A clause that requires a credit when a listed price falls can reduce or eliminate a net claim. Also look for caps, floors, thresholds, shared-risk bands and exclusions for costs already included in a contingency or allowance.
6. What notice and proof are required?
Notice may have to go to the contracting officer, owner, architect or other named representative within a stated period. Supporting records can include tariff notices, customs entry documents, supplier invoices, purchase orders, quotations before and after the event, proof of payment, quantity schedules and calculation worksheets. Missing a contractual deadline or using an unauthorized recipient can defeat an otherwise supportable adjustment.
Why a higher supplier quote is not enough
A supplier quote, tariff notice or increased landed cost can show economic impact, but it does not amend the construction contract. Confirm who has authority to approve a price revision and whether the agreement requires a written change order before the contractor proceeds or bills. A contractor that buys material at a higher price without preserving notice, procurement and mitigation records may have difficulty proving the amount or entitlement later.
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Separate three issues in the file:
- Occurrence: Did a covered tariff or other specified contingency actually take place?
- Causation: Did it increase the cost of the contract material, rather than reflect a supplier markup, exchange-rate movement, freight change or unrelated market shift?
- Contractual entitlement: Does the clause authorize an adjustment, and were its notice and approval procedures followed?
Subcontracts and flow-down terms
The prime contractor should compare its tariff or escalation rights with the subcontract language before promising a pass-through. A subcontract may contain no adjustment right, a narrower list of materials, a different baseline date, or a notice period shorter than the prime contract’s period. It may also require the subcontractor to absorb duties even when the prime has an agency-facing EPA.
Check whether the subcontract incorporates the prime clause verbatim, by reference, or with modifications. Identify who must submit the claim, who receives payment, and whether the prime may recover only the amount accepted by the owner or agency. A gap between prime and subcontract terms is a contractual allocation issue, not an automatic reason to bill the owner.
What to do when a tariff is announced
- Freeze the facts. Identify the affected material, specification, quantity, source country, tariff classification, supplier, purchase status and planned installation date.
- Build a date line. Record bid, award, notice-to-proceed, purchase-order, shipment, import-entry and tariff-effective dates. Mark which tariffs were known or effective at each contract milestone.
- Locate the controlling text. Pull the executed prime contract, amendments, schedules, incorporated FAR or other clauses, drawings, specifications and subcontract flow-downs. Check precedence provisions.
- Send protective notice. Follow the contract’s recipient, format and deadline. State that the notice preserves rights while the amount is being documented; do not characterize an unverified amount as final.
- Collect contemporaneous evidence. Preserve pre-event quotations, revised quotations, invoices, customs records, entry summaries, purchase orders, payment proof and quantity calculations.
- Test mitigation options. Ask whether an approved domestic source, alternate country of origin, different sequence, early purchase or design substitution is permitted. Document price, schedule, quality and approval consequences for each option.
- Calculate under the stated formula. Apply only the covered incremental amount, account for credits or refunds, and exclude duplicate recovery through allowances, contingencies or another change.
- Obtain written direction. If the contract requires a change order or contracting-officer approval, secure it before committing to a changed scope or invoicing an adjustment.
Negotiated structures before award
Owners and contractors can allocate tariff risk expressly instead of leaving it to implication. The following structures reflect adjustment concepts recognized in federal contracting practice; availability and enforceability depend on the governing law and the contract form.
| Structure | How it works | Questions to settle |
|---|---|---|
| Fixed price with contractor-held risk | The bid includes the contractor’s estimate of foreseeable escalation; no later adjustment unless another clause applies. | Which known tariffs are included, whether a change-in-law clause remains available, and how owner changes are handled. |
| Actual-cost EPA | Price moves up or down by the documented change in specified material or duty cost. | Baseline, eligible documents, audit rights, mitigation, timing and treatment of refunds. |
| Index-based EPA | Price follows a named industry or government index. | Index publisher, publication frequency, lag, substitution if the index ends, and whether the index actually tracks tariffs. |
| Specified-material allowance | An allowance is reconciled to the approved material cost under stated rules. | Scope of the allowance, markup, unused balance, overrun approval and interaction with contingencies. |
| Shared-risk threshold or cap | The parties share changes within a band and assign increases above a threshold, subject to a cap or floor. | Threshold measurement, percentage split, maximum exposure, decreases and termination or renegotiation rights. |
For each structure, define the covered tariff events, materials, countries and quantities; the objective trigger; the baseline date and price; the evidence; the adjustment formula; caps, floors and thresholds; mitigation and substitution rights; notice and approval timing; and the treatment of decreases. FHWA’s Construction Program Guide includes guidance on developing and using price-adjustment provisions, including design-build escalation considerations.
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Common failure points
Assuming “tariff” has a universal meaning
Contracts may use “duties,” “taxes,” “government charges” or “changes in law” instead. Read definitions and exclusions. A provision that covers a new tax may not cover an import duty, and a provision covering a named material may not cover every component used to make it.
Using the wrong baseline
Comparing a post-tariff invoice with an old estimate can overstate the adjustment. Use the baseline specified by the contract and isolate the tariff component from ordinary market movement, freight, currency and supplier pricing.
Ignoring decreases and credits
EPA provisions can require downward revisions. Track refunds, duty drawbacks, rebates, returned material, substitutions and reduced quantities so the final calculation reflects the net covered cost.
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FAR’s EPA framework cautions against including the same contingency in both the base price and the adjustment mechanism. The contract should state how an allowance, contingency, insurance recovery or other payment interacts with a tariff claim.
Proceeding without authorization
Field direction, an email from an unauthorized employee or a supplier’s demand may not satisfy a written-change requirement. Follow the contract’s authority and documentation rules before treating the amount as billable.
Federal, private and state projects are not interchangeable
FAR 36.207, FAR 16.203 and FAR Part 52 provide a useful federal procurement framework, not a universal rule for every construction contract. State statutes, public-bidding rules, standard forms and private agreements can impose different notice, disclosure, pricing and change-order requirements. Governing law may also affect interpretation, impossibility or force-majeure arguments, damages and waiver.
Tariff measures and effective dates can change. For a live claim, verify the current customs measure and the contract’s trade, tax and import provisions, then have construction counsel review the complete agreement and project record. The decisive question remains whether the executed contract assigns this defined risk and whether the claimant followed the required process.
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