Tariffs on construction materials have been rising steadily, putting significant pressure on contractors and trades. With President Trump enacting new tariffs frequently, it’s important our local businesses remain protected. Higher material costs can quickly erode profit margins, delay projects, and lead to disputes with clients over unexpected price increases. To survive and thrive despite these challenges, contractors need proactive strategies to mitigate the impact of tariffs on their businesses. This article outlines practical steps contractors can take to safeguard their profits and maintain smooth project timelines.
1. Lock in Prices Early with Suppliers
The most effective way to shield yourself from sudden price hikes is to lock in prices with your suppliers as early as possible. Consider negotiating fixed-price contracts for essential materials or, at a minimum, requesting price protection clauses that cap increases. Establishing strong, long-term relationships with suppliers can also help you get priority pricing or early warnings about impending cost increases.
Tip: Ask suppliers about material availability and expected price trends during the pre-construction phase to help budget accurately.
Solution: A one-time investment in Skepsis Legal’s contract drafting and negotiation services can save you tens of thousands of dollars over the next few years.
2. Include Escalation Clauses in Contracts
Escalation clauses allow you to adjust contract prices based on material cost increases beyond your control. This clause can specify a percentage threshold at which price adjustments are triggered, protecting your profit margins without causing sticker shock for clients.
Solution: Skepsis Legal’s flat fee prime contract and subcontract drafting services make sure your contracts include these key provisions.
3. Buy in Bulk or Pre-Purchase Key Materials
If you have the cash flow, consider buying commonly used materials in bulk before tariffs increase further. This approach helps lock in lower prices and ensures material availability for future projects. Storing materials securely on-site or in a warehouse may incur additional costs but can save significantly compared to paying higher prices later.
Pro Tip: Prioritize pre-purchasing materials that are most susceptible to tariff increases, like steel, lumber, and electrical components.
4. Diversify Suppliers and Sources
Relying on a single supplier or region for critical materials increases your vulnerability to tariffs and supply chain disruptions. Expand your supplier network to include domestic options and countries not subject to high tariffs. Exploring alternative materials that serve the same purpose but are sourced tariff-free can also reduce cost pressures.
Tip: Consider working with a procurement consultant to identify cost-effective suppliers.
Solution: At Skepsis Legal, we have a strong network of subcontractors and suppliers who are great at what they do. Email us and we would be happy to make introductions to your next favorite subcontractor or supplier.
5. Review and Update Contracts Regularly
Contracts that were sufficient a year ago might now leave you exposed to higher costs. Review your standard contracts and subcontracts to ensure they include tariff-specific clauses, escalation terms, and provisions that pass on material cost increases to clients where appropriate.
Key Clauses to Review:
- Force majeure
- Material price escalation
- Change order procedures
Solution: Book a meeting with our construction attorney to get a cost-effective review of your contract so you know exactly where you need to focus to protect yourself into the future.
6. Communicate Early and Transparently with Clients
Clients appreciate contractors who keep them informed about potential cost increases due to tariffs. Being upfront about the risk of rising material prices builds trust and makes clients more amenable to contract adjustments if costs go up.
Tip: Provide clients with a material cost breakdown and explain the impact of tariffs during the proposal stage.
7. Join Industry Trade Groups
Industry trade groups are one of the strongest lobbies that the building industry has in both local and national politics. Right now, many are fighting to get tariff exemptions on some of the most critical materials for new housing. Be sure your voice is heard by joining an industry trade group for your type of construction and your geographic area.
Solution: At Skepsis Legal, we are members of NIBCA. We’d be happy to sponsor your membership in that fabulous organization, and help make sure your voice is heard and amplified on a local and national level.
Conclusion
Rising tariffs are a significant challenge for contractors and trades, but a proactive approach can help manage the impact. By securing prices early, including escalation clauses in contracts, and diversifying suppliers, contractors can protect their profit margins and keep projects on track. For help reviewing or updating your contracts to safeguard against tariffs, contact Skepsis Legal Solutions for excellent legal advice tailored to the construction industry.
