Federal Contractors Must Navigate Overlapping Tariff Refund Rights After Supreme Court Ruling

Federal contractors who paid tariffs on imported goods used to perform government contracts must navigate overlapping refund rights and repayment obligations.

A Covington blog post explains that after the Supreme Court’s February 2026 decision striking down tariffs imposed under the International Emergency Economic Powers Act (IEEPA), the United States Court of International Trade began a refunding process called liquidation that covers just some payments.

This dual dynamic, potential refund recovery alongside mandatory credits to the government, creates significant financial and legal considerations for contractors with many types of contracts.

Government contracts frequently include Federal Acquisition Regulation clauses governing tax-related price adjustments. Under FAR 52.229-3, fixed-price contracts must be decreased by any “after-relieved Federal tax,” which may include judicially invalidated tariffs. Upon receiving such relief, contractors must promptly notify their contracting officer.

Cost-reimbursement contracts carry analogous obligations under FAR 31.205-41(d), FAR 31.201-5, and FAR 52.216-7(h)(2), each requiring that refunded amounts originally treated as allowable costs be credited or paid back to the government.

No court has expressly determined whether FAR 52.229-3 applies to tariffs or whether illegally imposed duties constitute an “after-relieved tax.” However, the Supreme Court and relevant executive orders used “tariff” and “duty” interchangeably. That suggests the clauses may apply.

Contractors without FAR 52.229-3 or 52.229-4 in their contracts may have grounds to resist price reductions. Cost-reimbursement contractors face broader, more explicit repayment obligations.

Counsel should audit client contracts to identify applicable FAR clauses and assess exposure under both fixed-price and cost-reimbursement arrangements. Timely notification to contracting officers is a contractual prerequisite that, if missed, could waive favorable positions.

Given unresolved questions about whether invalidated tariffs qualify as after-relieved taxes, clients should document all tariff payments and refund receipts meticulously.

Enterprise risk management protocols should be updated to incorporate regulatory-driven cost recovery and repayment obligations triggered by judicial action.