As St. Patrick’s Day approaches, many of us are on the lookout for four-leaf clovers, a pot of gold, or perhaps even a mischievous leprechaun guarding his treasure. However, in the world of government contracting, the real tricksters aren’t wearing green coats and buckled shoes—and there is no gold at the end of the procurement rainbow. Instead, that pot is full of the recently announced tariffs. Effective March 4, 2025, the Trump administration imposed 25 percent tariffs on Mexican and Canadian imports (excluding Canadian energy imports, which face a 10 percent tariff) and a 20 percent tariff on Chinese products. While economists, pundits, and the stock market will all have their say on the wisdom behind these actions, such prognostication is of little help to federal contractors who are forced to deal with the very real effects right now.
Like an unexpected trick from the fae folk, tariffs can sneak up and change the game, making materials much more expensive and contracts more complex. So what’s a contractor to do when the economic winds shift and tariffs threaten to drain the pot of gold at the end of the contract rainbow? Fear not! Much like a clever bard spinning tales of old, we’ll unravel the mystery of tariff-driven costs and guide you through the potential remedies hidden within federal regulations.
The Curse of the Tariff Tricksters
For government contractors, tariffs don’t just increase the price of foreign goods; they can also push up the cost of domestic materials by reducing competition and imposing unforeseen taxes on doing business. Before you know it, suppliers are charging more, and like an unlucky traveler who angered a banshee, you’re left scrambling to find a way forward. Luckily, the regulatory world is not without its lucky charms. And while not nearly as delicious as green clovers, pink hearts, orange stars, and yellow moons made from marshmallows, there are provisions in the Federal Acquisition Regulation (FAR) that may help banish the tariff curse.
The Taxes Clause
One of the most powerful charms against unexpected tariffs is the FAR 52.229-3 (Federal, State, and Local Taxes) clause. This provision allows contractors to adjust prices when new or increased federal excise taxes or duties (such as tariffs) are imposed after a contract award. However, like a tricky leprechaun’s deal, this charm only applies to tariffs that the contractor pays directly. If tariffs drive up domestic supply costs indirectly, you may find yourself out of luck. Additionally, the taxes clause only works if you notify your contracting officer promptly and demonstrate that the tariff costs weren’t already baked into your original pricing. If you forget to act in time, the gold will remain beyond reach.
The Economic Price Adjustment
If the taxes clause fails to work its magic, another powerful tool exists: the economic price adjustment clause (EPA), which is set forth at FAR 52.216-4. Intended for “upward and downward revision of the stated contract price upon the occurrence of specified contingencies” in certain fixed-price contracts, this clause could provide a means to adjust contract pricing when external economic factors—such as a tariff-induced price spike—affect material costs.
However, companies need to recognize that not all contracts contain this clause. Check the fine print in your contract! Even if present, the clause is not a magical panacea. When included, the increase is often capped at 10 percent of the unit price—meaning that if costs have soared beyond that, you’ll need to find another way to protect your bottom line. For those working with the Department of Defense, there are additional remedies in the Defense FAR Supplement (DFARS) that apply specifically to basic steel, aluminum, and nonstandard steel items. Just like good Irish whiskey, these remedies come with conditions: You must provide proof of cost increases and give the contracting officer timely notice.
Shortages, Delays, and the Luck of the Irish
An often-overlooked consequence of tariffs is the shortage of materials due to intense supply chain pressures, which can lead to delays. If contractors can’t get the supplies they need, meeting delivery timelines becomes as tricky as catching a leprechaun. Fortunately, there’s an out: the excusable delays clause. If a contractor can prove that delays were caused by forces beyond their control (such as tariffs creating supply shortages), they may be granted additional time to fulfill their contract. If the government refuses to extend deadlines despite an excusable delay, a contractor might have grounds for a constructive acceleration claim. This occurs when the government insists that work proceed at the original pace despite an unavoidable delay. In such cases, the contractor may be entitled to compensation for increased costs. The key, again, is to carefully examine the clauses in your underlying contract and to provide timely notice supported by requisite proof of delay.
Myths and Legends
Sovereign Acts Doctrine
The Sovereign Acts Doctrine protects the government from being held liable for economic hardships caused by public and general acts—which, unfortunately for contractors, include tariffs. Under this long-standing doctrine, courts have continuously ruled that because the tariff applied to all businesses equally, there wasn’t a targeted harm to an individual company so as to result in a breach of contract. This was seen quite a bit during the COVID-19 pandemic, in which courts ruled that government-mandated lockdowns were sovereign acts, meaning contractors couldn’t recover costs (as distinct from receiving schedule extensions) due to supply chain disruptions. Tariffs, like these public health measures, generally fall under the same category. That means contractors facing increased costs due to tariffs might be out of luck—unless they have one of the regulatory lifelines mentioned earlier.
Constructive Change
Some contractors, hoping for an extra pinch of luck, may seek compensation by arguing that tariffs impose a “constructive change” to their contract—much like an unexpected spell altering the terms of a deal with a fae lord. But under FAR 52.243-1 to FAR 52.243-7, a constructive change only occurs when the government directly modifies contract requirements. Since tariffs are broad economic policies rather than contract-specific actions, they generally don’t qualify for this theory of entitlement. Accordingly, the changes clause provides little sanctuary for contractors impacted by tariffs.
The End of the Rainbow?
If the past few weeks have demonstrated anything, it’s that the outlook on tariffs remains as unpredictable as a rolling mist over the Cliffs of Moher. With shifting trade policies and economic uncertainty, contractors must be proactive in assessing how tariffs could affect pricing, supply chains, and contract terms. In these tumultuous times, some key takeaways for staying lucky in government contracting include:
🍀 Having a thorough understanding of your vendor and supply chains and the attendant potential pressures faced by companies with whom you do business.
🍀 Being prepared to immediately reprice materials if you are actively negotiating contracts and subcontracts.
🍀 Checking your contracts for any regulations that allow for pricing and/or schedule relief.
🍀 Notifying contracting officers immediately if you believe tariffs will impact pricing and/or the delivery schedule.
🍀 Being mindful of limitations imposed by contractual terms, such as the 10 percent cap on EPA claims.
Much like an Irish legend, tariffs can turn fortunes from gold to coal in an instant. But for those who stay sharp, read the fine print, and act swiftly, the right contract provisions might just be a “magically delicious” way to keep your treasure safe from the grasping hands of trade policy tricksters.
Sláinte to good business and smooth contracts! 🍀
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