The imposition of tariffs between the U.S. and Canada significantly impacts the construction industry and its regular supply chains. Contractors and subcontractors should anticipate how tariffs will impact their contract pricing and schedule.
Where tariffs are likely to impact a construction contract, contractors and subcontractors can mitigate risks and navigate the uncertainty of tariffs by considering and complying with common contractual provisions.
Contract Type and Risk Exposure
The contractual provisions engaged by tariff-related risks will vary substantially depending on the form of contract. Construction contract types likely to be significantly impacted by tariffs include:
- Fixed-Price Contracts;
- Design-Build Contracts; and
- Unit-Price Contracts.
Regardless of contract type, understanding how the risk of cost escalation is allocated in your contract is crucial to avoiding or navigating any disputes which could arise as a result of tariffs.
Managing Tariff-Related Risks
Tariff-related risks are most likely to take the form of cost escalations and/or project schedule delays.
Whether tariffs are causally related to cost escalation, project schedule delays, or other issues, most construction contracts, including CCDC standard-form contracts, include provisions for dispute resolution, change orders, or schedule extensions.
If subcontractors or contractors anticipate that their contract may encounter price escalations or schedule delays, subcontractors and contractors should review their contracts’ dispute-resolution, change-order, and schedule-extension provisions.
Dispute-resolution, change-order, or schedule-extension provisions almost always have notice requirements, which require notice be given within a short period after price escalation or delay issues arise. These notice periods can be as short as two days from when an issue arises.
Courts interpret contractual notice provisions strictly.1 This means that if a contractor or subcontractor is not aware of the contractual notice requirements of a change order provision, and they do not provide notice of a claim for a change order after the notice provision is triggered due to a tariff related price escalation, a subcontractor’s or contractor’s entire claim may be barred, and any loss may need to be shouldered entirely by the subcontractor or contractor.
It is paramount that contractors or subcontractors that believe their contracts will be impacted by tariffs review their contracts and/or consult with a lawyer to review their contractual provisions to ensure contractual compliance and preservation of contractual rights.
More Severe Tariff Impacts
In addition to price escalations or delays, tariffs may also lead to more severe impacts on construction contracts which make a contract fundamentally different or impossible to perform.
Most construction contracts and CCDC contracts account for fundamental changes or impossibility using force majeure clauses.
Force majeure clauses require that performance of a contract be impossible and not just difficult or unprofitable.2 Further, force majeure clauses have strict notice requirements similar to those for change orders and are typically limited to certain occurrences, which may or may not include tariffs.
Proactive Legal and Contractual Strategies
Contractors and subcontractors ought to take proactive steps to protect their interests in light of U.S.-Canada tariffs. Understanding your contracts, ensuring compliance with notice provisions, and addressing delays will help mitigate financial and legal risks. Consulting Walsh LLP’s construction lawyers when facing potential tariff related price escalations, delays, or tariff-related disputes can mitigate the risk of bearing the full loss of tariff-related price escalations and delays.
For further details or specific inquiries please contact:
Locklyn E. Price, Partner
Email: lprice@walshlaw.ca
Telephone: 403.267.8440
VCard
Or
Chad Erisman, Associate
Email: cerisman@walshlaw.ca
Telephone: 403.267.8481
1 Corpex (1977) Inc. v. The Queen in right of Canada, 1982 CanLII 213 (SCC), [1982] 2 SCR 643.
2 Roberge v 1102940 Alberta Ltd, 2012 ABQB 717 at para 70.
