Force majeure clauses in contracts are typically associated with protecting construction professionals and others from liability if a natural disaster (like a hurricane or flood here in Florida) prevents them from finishing a project or meeting other contractual requirements as scheduled. These clauses can also protect them when there are other unforeseeable events, including everything from war to sudden and unexpected supply shortages and labor strikes.
With all of the uncertainty around tariffs now, there’s been a lot of discussion, particularly in the construction industry, around whether sudden changes in tariffs that affect the price and availability of supplies, parts, equipment and more can be considered a force majeure (“superior force”).
It can be impossible to provide a reasonable estimate for a project when a business owner doesn’t know what the prices of materials will be when the project gets underway, or whether another country may stop exporting materials to the U.S. completely.
Examples of contract language to include around tariffs
The Harvard Business Review recently published some recommendations for those drawing up contracts (and specifically force majeure clauses) in this uncertain economic climate. They include the following:
- Specifically include language about “material changes in trade policy or tariffs” in force majeure clauses.
- Use a “should-cost” provision to “base contracts on expected costs with predefined price variation triggers, ensuring suppliers don’t exploit tariff hikes for excess profits.”
- Provide a threshold (for example, 10%) at which a tariff increase will trigger a cost-sharing arrangement between the parties to the contract.
Like any force majeure provision, these should be a last resort. It’s preferable to minimize what events are really “unforeseen” and have enough backup options and contingency plans that the force majeure clause doesn’t have to be invoked.
With so much uncertainty in the economy, the country and the world, it’s more critical than ever for all business owners to have carefully drafted contracts that will help protect them if things go sideways. Having experienced legal guidance when drafting, negotiating and signing contracts can protect a business’s reputation and bottom line.