Managing Construction Risks Amid Tariff Volatility

In their article for Bradley Arant Boult Cummings LLP, David Owen and Mason Rollins examine how shifting tariffs and trade uncertainty are reshaping construction risks. The authors note that steel, aluminum, lumber, and key equipment are increasingly affected by tariffs that change without notice, forcing owners, contractors, and suppliers to determine who bears the added costs. Given this unpredictability, proactive risk management and contractual precision have become essential.

Owen and Rollins emphasize that well-drafted contracts remain the first line of defense. Contractors are advised to include tariff adjustment clauses that allocate cost increases or savings tied to tariff fluctuations. Escalation clauses can similarly allow for price adjustments if material costs rise above a set threshold, while contingency allowances built into project budgets can help cushion unexpected cost fluctuations. Each approach, they argue, depends on careful negotiation between owners and contractors at the outset of a project.

Beyond contracts, the authors recommend strengthening supply chain strategies: locking in material prices early, identifying multiple suppliers, and evaluating storage options to offset potential tariff hikes or shortages. Communication is another critical safeguard; regular updates and formal notices help project stakeholders adapt quickly to economic shifts and avoid disputes.

For added resilience, Owen and Rollins suggest exploring insurance products such as subguard coverage and financial instruments like futures contracts to hedge against material cost volatility. For risk managers, their key takeaway is clear: tariff-driven construction risks can’t be eliminated, but they can be mitigated through foresight, transparency, and contractual discipline.