Addressing the Effects of Tariffs on Business Contracts

Jeff Storch | 04.03.25

The imposition and proposition of new tariffs may create uncertainty around the costs and availability of imported materials. This can cause challenges for businesses with contracts that are structured to include pricing based on those costs or with scheduling requirements tied to the availability of materials.

There are different approaches available to mitigate this uncertainty. As described below, existing contracts already may include provisions that could help. It also may be beneficial to consider adding new provisions and taking other practical steps.

Existing Contracts

It is possible your existing contracts already have provisions that could help you respond to cost changes and delivery delays due to tariffs, even if ​“tariff” is not explicitly mentioned in the document. Some likely sections include those on:

• Pricing. Does your contract’s pricing language give you the right to adjust the price, such as at specific intervals or upon material changes in costs? This is more common for long-term contracts that apply to multiple transactions or an ongoing relationship, but single-project contracts might include this language.
• Renewal. If the contract does not allow adjustment during the current term of the agreement, you still may be able to negotiate changes if the contract has a renewal provision (though this may not be relevant for single-project contracts).
• Force majeure. Many contracts list ​“force majeure” events (extraordinary developments or circumstances beyond the parties’ control) that excuse performance. 
  • Some common force majeure events arguably apply to tariff increases, even if the word ​“tariff” is not used, such as changes in government orders, laws, regulations, or similar reasons.
  • However, a party invoking a force majeure clause may have to show the tariffs were unforeseeable when the contract was signed, which may pose challenges, particularly for contracts entered into more recently.
  • In addition, other requirements may need to be met, depending on how the force majeure provision is worded.
  • Finally, many force majeure provisions only address delays caused by the force majeure event and not increased costs (though a party could argue that the increased cost gives them a termination right, discussed next).
• Termination. If the contract allows termination for material adverse circumstances, changes in law, force majeure, or other applicable circumstances, then the termination provision could be used to try to renegotiate pricing or, at worst, get out of a financially undesirable contract.

New Contracts

For new contracts, consider including provisions to address potential tariff increases and delays, such as:

• Tariff or duty-specific provisions, including: 
  • Automatically passing on any cost increases to the customer.
  • Granting renegotiation rights if there are cost increases.
  • Granting termination rights if there are cost increases and the customer disagrees with you on how to address them.
  • Adding the right to delay performance deadlines if there are delays in getting materials from other countries.
• Specifically mentioning tariff and duty increases as constituting a force majeure event (consider if there should be a minimal threshold, e.g., an increase in tariffs or other duties cumulatively of at least X% since the proposal or final contract was signed).

Other Steps

In addition to including provisions about tariffs in your contracts, you also can adjust your business practices. For instance:

• Incentivize customers to sign the contract earlier in the process so that you can start ordering necessary imported goods. But realize that the customer could still breach the contract after you have committed to your contractors and suppliers. To add protection against this, you could: 
  • Get more money down, preferably lining up when you get money from the customer to when your own financial commitments are due.
  • Add language in the contract to demonstrate your reliance on the customer’s commitment and your customer’s acknowledgment that you will be incurring costs based on that reliance.
• Look for domestic sources (this may not be feasible in all situations).
• Build in longer lead times (to soften any delays related to tariffs, such as delays in products clearing customs or shortfalls in material availability due to importers reducing orders).
• Order more inventory than you usually carry. Of course, this increases your carrying costs and storage risk.
• Reduce how long the price of your quotes will be valid.
• Alternatively, keep quotes open as usual but offer a discount if the customer commits within a short time.

If you have questions about how your business can respond to changes in tariffs, please contact the primary Boardman Clark attorney with whom you work or call us at (608) 257 9521 to speak with one of our business attorneys.

• Contracts