The Canadian and U.S. construction industries are interconnected, with materials such as steel and lumber frequently crossing borders. The recent imposition of tariffs by the United States and the reciprocal Canadian tariffs have raised concerns and uncertainty around cost fluctuations. The key question for construction project owners is: does your contract protect you from these financial risks?
Force Majeure: Do Tariffs Qualify?
A force majeure clause typically covers unforeseeable and uncontrollable event that prevent a party's contractual performance. While tariffs are indeed beyond a contractor's control, Canadian courts have consistently ruled that higher expenses alone do not constitute a force majeure event. Unless a contract explicitly includes tariffs or duties under its force majeure clause, contractors must demonstrate that tariffs have rendered the contract commercially impossible, not just more expensive.
Express Contract Terms: What Does Your Agreement Say?
The Canadian Construction Documents Committee (CCDC) standard contracts, particularly the most commonly used CCDC 2 (Stipulated Price Contract), include specific provisions that determine who is responsible for the financial burden of tariff-related price increases:
- GC 10.1.2 shifts the risk to the owner for any contract price increases resulting from increased costs due to a change in taxes and duties after bid closing. This clause was heavily relied upon in 2016 when rising steel costs led to higher project costs, forcing owners to absorb the financial impact. Given the current tariff-driven material price hikes, contractors may try to invoke this clause to request price adjustments.
- GC 10.2.7 further holds owners responsible for cost increases due to any changes in law after bid closing. Contractors may try to argue that tariffs qualify as a change in law, with the Canada and U.S. taking actions that increase the cost of materials. Similar arguments were raised during COVID-19, due to health regulations ultimately causing cost escalations.
Key Takeaways
Now is the time to review your construction contracts and ensure you are protected from unexpected cost surges. Your contract should clearly define who absorbs tariff-related costs, limit price increases to tax and duty changes related to imports and explicitly state that you are not responsible for general price escalations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
