Important Terms for Price Escalation Clauses to Mitigate the Inflationary Effect of Tariffs on Construction Materials
The prospect of 25 percent tariffs being imposed on all steel and aluminum imports by the newly elected Trump administration, together with the 10 percent increase on tariffs already levied on Chinese imports, has created uncertainty in the construction industry. The uncertainty is permeating existing construction projects because of likely inflation in product and material costs due to shortages and supply chain interruptions. It is also affecting contract negotiations between owners and contractors for new projects. If fully enacted, the tariffs could inflict higher costs for many products and materials, including concrete, lumber, steel, aluminum, drywall, appliances and electrical component parts. Estimates for the increased monetary costs imposed by these new tariffs range in the billions of dollars.
The new tariffs are particularly problematic for GMP contracts where owners and their lenders desire some degree of certainty about how much a project will ultimately cost, especially public or quasi-public projects that rely on bond financing. Left unaddressed, rising tariffs threaten to discourage parties from engaging on new projects, or worse, scuttle projects that are ongoing. Indeed, a recent construction contract negotiation that Bracewell was involved in was significantly prolonged and complicated by protracted haggling over language in force majeure, contingency, allowance, change order and other contractual provisions that could be impacted by the new tariffs.[1] Ultimately, the parties were able to move forward because of an agreed price escalation mechanism that was written into the construction contracts.
The current circumstances beg the question: how can parties involved in construction projects adequately protect against cost overruns caused by the inflationary effect of the new tariffs? As discussed in the 2018 update from Bracewell referenced above, the most common mechanism used to address this issue is a detailed price escalation clause.[2] Unlike 2018, the current Trump administration’s tariffs could be exponentially more expensive by affecting products and materials beyond just steel and aluminum, including Chinese appliances, component parts, and lumber from Canada and Mexico. Prior to the Trump tariffs in 2018, it was uncommon to find price escalation clauses in typical construction contracts. Surprisingly, even after the imposition of steel and aluminum tariffs in 2018, these types of escalation clauses are still uncommon and are not included in standard forms from construction contract authorities like the AIA, which instead rely on the change order process to address inflation.
A price escalation clause, where parties agree at the outset of a project to specific terms and mechanisms to address inflation (in this case imposed by tariffs), is the best solution. Parties are more likely to be able to agree on the parameters of how increased costs will be managed before those increased costs occur, unlike the change order process where one party will generally have leverage over the other and disputes are more common. However, price escalation clauses can be complex and must be fully thought out and sufficiently detailed to address as many contingencies as possible – the fewer variables the better.
Perhaps the most important term in a price escalation clause is the trigger, i.e., when is the clause activated? It does not make sense for a price adjustment mechanism to be triggered for trivial or nominal increases in product and material costs, and most parties, whether it is an owner in a cost-plus agreement or a contractor in a GMP contract, understand that it is customary for certain economic fluctuations to be absorbed by one side. Therefore, a triggering mechanism that is activated beyond smaller price increases is important. The most effective triggering mechanisms relate to a specific percentage increase in the cost of a product or material measured from the time the contract is executed and tied to a reliable and accepted index, like the Producer Price Index published by the Bureau of Labor Statistics (PPI). For example, a cost-sharing arrangement could be triggered when the cost of steel increases by 10 percent over and above the cost at the beginning of the contract as reflected in the PPI.
Another triggering mechanism may involve comparing the contractor’s purchase orders at the beginning of a project to purchase orders issued later in the project. This form of trigger is generally harder to enforce and may be subject to varied interpretation and manipulation, but in some cases it may more accurately capture local economic trends.
It is important in any price escalation clause to clarify that only the increased costs beyond the trigger price are subject to sharing, and not all of the underlying cost increases. Of course, both parties should have rights to review and/or audit all documents used to justify the implementation of a cost-sharing mechanism once it has allegedly been triggered. It is also important to specifically set forth the cost-sharing mechanism between the parties for all increases beyond the trigger price. A customary way to document that mechanism is through percentages, i.e., owner pays 30 percent and contractor pays 70 percent of all increased costs for the product or material at issue. Other ways to handle the cost-sharing arrangement are through an express right of the contractor to draw off a contingency fund or through an allowance that is funded by the owner prior to the beginning of the project.
Finally, price escalation clauses should contain a ceiling that when reached allows the parties to either suspend or terminate the project. The protection of a ceiling provision is important because even with a cost-sharing mechanism in place, there is usually a point at which cost increases become so substantial that it is not economically feasible for one or both parties to continue the project. The ceiling should be negotiated up front by the parties and should use the same mechanism as the trigger component of the clause, i.e., a percentage above a certain price index. The price escalation clause should contain language providing options to the parties once the ceiling has been reached. The options may include suspension of the project, a termination for convenience, a declaration of a force majeure or other forms of agreed procedures. A project termination under these circumstances would normally allow the parties to recover their reasonable costs and overhead and would not give rise to a default or a claim for breach.
Price escalation clauses are a valuable tool for both owners and contractors to consider in today’s economic climate to provide at least some level of control against rising product and material costs, but they can be tedious to draft and negotiate, so including outside counsel in the process can be helpful to expedite negotiations.
[1] Bracewell previously provided guidance on whether force majeure clauses can be implicated by steel and aluminum tariffs back in 2018, when the previous Trump administration imposed substantial steel tariffs on China. See “Steel and Aluminum Tariffs: Time to Dust Off the Price Adjustment Clause?,” Bracewell Update, August 28, 2018, and “Steel and Aluminum Tariffs? Can You Turn To Your Force Majeure Clause?,” Bracewell Blog Post, March 22, 2018.
[2] See “Steel and Aluminum Tariffs – Time to Dust off the Price Adjustment Clause?,” Bracewell Update, August, 28, 2018.
First Circuit Broadly Interprets Exclusion in Commercial General Liability Policy Under Current Massachusetts Law
In Admiral Insurance Co. v. Tocci Building Corp., 120 F.4th 933 (1st Cir. 2024), the federal Court of Appeals ruled that, under current Massachusetts law, a general contractor’s Commercial General Liability (CGL) policy does not cover damage to non-defective work resulting from defective work by subcontractors.
The defendant contractor was retained as a construction manager for an entire residential construction project. After several work quality issues and delays on the project, the contractor was terminated before the project’s completion. The owner of the project filed suit against the contractor for breach of contract and related claims but did not allege negligence by the contractor. The complaint included allegations of defective work by the contractor’s subcontractors leading to various instances of damage to non-defective work on the project including: (1) damage to sheetrock resulting from faulty roof work; (2) mold formation resulting from inadequate sheathing and water getting into the building; and (3) damage to a concrete slab, wood framing, and underground pipes resulting from soil settlement due to improper backfill and soil compaction. The contractor’s request for defense and indemnification coverage under its CGL policy was denied by its insurer. The insurer filed suit seeking a declaratory judgment confirming it had no obligation to defend or indemnify the contractor. The district court granted summary judgment in favor of the insurer and the contractor appealed.
The Court examined the “Damage to Property” exclusion outlined in subsection (I)(2)(j) of the CGL policy, which provides that there is no coverage for “property damage” to “(6) [t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it.” The CGL policy defines “your work,” in relevant part, as “work or operations performed by you or on your behalf.” Since the complaint alleged damage resulting from the contractor’s “incorrectly performed” work on the entire project, the Court interpreted the (j)(6) exclusion as applying to the entirety of the project where the contractor was the construction manager charged with supervising and managing the whole project, the Court enforced the exclusion against coverage for the contractor.
The Court also examined the exception to the exclusion in (j)(6), which provides that the exclusion does not apply to “‘property damage’ included in the ‘products-completed operations hazard.’” The “products-completed operations hazard,” in turn, “includes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’ except … (2) work that has not yet been completed or abandoned.” Since the contractor was terminated and did not complete or abandon the project prior to damage, the court of appeals concluded that the coverage exclusion in (j)(6) still applied.
In closing, the court of appeals left the door open for potential coverage for damage to non-defective, work arising from a subcontractor’s defective work even with the (j)(6) exclusion. Since the Massachusetts Supreme Judicial Court has yet to rule on the issue, it could interpret “property damage” caused by an “occurrence” to encompass this type of damage, which could allow a general contractor to potentially receive coverage if the work is completed or abandoned, as the exception to the exclusion would then apply.
General Contractor Defeats Owner’s Notice Argument and Prevails in Seattle Condo Dispute
The Washington Court of Appeals recently affirmed a jury verdict and $30 million judgment for general contractor Skanska. The case involves the construction of the 41-story Nexus condominium tower in downtown Seattle. As is often the case, one of the central issues was whether Skanska was entitled to be paid for alleged changes to its scope of work. The owner made a familiar argument: Skanska had not followed the contractual procedures for giving notice and obtaining authorization to perform change order work but had instead relied on more informal communications, including oral directives, emails, and meeting minutes.
The Court of Appeals rejected those arguments finding sufficient evidence for the jury to have concluded that the parties agreed to modify or waive strict compliance with the formal requirements of the contract. This evidence included the owner’s practice of regularly approving change order work that did not follow the contract requirements. Based on the parties’ course of conduct the court found sufficient evidence to support the jury’s award in Skanska’s favor. In addition to recovering its unpaid balance, Skanska was also awarded interest and attorneys’ fees as the prevailing party, including its appellate attorney fees. The court remanded the case for a recalculation of prejudgment interest on certain change order work but otherwise affirmed.
A copy of the court’s decision is available here.
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Biden’s Executive Order on Project Labor Agreements Violates CICA
In a recent decision, the Court of Federal Claims (COFC) ruled on bid protests filed by 12 construction companies challenging the implementation of a February 4, 2022, Executive Order 14063 that mandated the use of project labor agreements (PLAs). FAR Council implemented EO 14063 in January 2024, and it was the first executive mandate to use PLAs for all large-scale government contracts (see FAR 22.503 (Jan. 2, 2024) and FAR 22.501 (Jan. 2, 2024)). The purpose of these PLAs is to limit the prime contractor to the use of union labor to perform the subject contract. EO 14063 defines “project labor agreement” as “a pre-hire collective bargaining agreement with one or more labor organizations that establishes the terms and conditions of employment for a specific construction project and is an agreement described in 29 U.S.C. 158(f).”
Plaintiffs argued (among other things) that Biden’s EO FAR regulations violated the Competition in Contracting Act’s (CICA) “full and open competition” requirements because it served as a blanket disqualification for offerors who would otherwise be considered responsible. Citing to National Government Services, Inc. v. United States, 923 F.3d 977 (Fed. Cir. 2019), the COFC agreed that Biden’s EO violated CICA’s “full and open competition” requirements and that the PLA mandates “have no substantive performance relation to the substance of the solicitations at issue…”
The COFC further determined that the PLA did not qualify for any exceptions to the full and open competition requirement. In particular, the court looked at § 3301(a), which provides for an exception to the CICA’s “full and open competition” requirements where there are “procurement procedures otherwise expressly authorized by statute…” The COFC rejected the government’s argument that the FAR provisions fall within the “expressly authorized by statute” language of § 3301(a) and therefore no exception applied.
Particularly noteworthy in this decision was the evidence that many of the agencies that were subject to this protest conducted market research that indicated PLAs would not contribute to the economy or efficiency of the subject project, or that a PLA would reduce competition, increase costs, and create inefficiencies for contractors and procurement officials. The agencies’ 2024 implementation of the mandate ignored their own market research that had concluded PLAs would be anticompetitive. Instead, these agencies relied solely on the executive order presidential policy – which the COFC found to be arbitrary and capricious.
By February 3, 2025, the parties are to file a joint status report explaining the agencies’ plans for each solicitation moving forward.
Immigration Insights Episode 8 | Decoding the RIA: The Essential Role of Fund Administrators in EB-5 Regional Center Offerings [Podcast]
In this episode of Greenberg Traurig’s Immigration Insights series, host Kate Kalmykov is joined by Jill Jones, Head of Specialty Administration/General Counsel US, JTC, to discuss the EB-5 Reform & Integrity Act of 2022; how the post-RIA fund administrator is different from pre-RIA; the value of a fund administrator in EB-5 securities offerings; and the need for construction consultants.
2025 Outlook: Recent Changes in Construction Law, What Contractors Need to Know
The construction industry is at a crossroads, influenced by shifting economic landscapes, technological advancements, and evolving workforce dynamics. With 2025 under way, businesses must stay ahead of key trends to remain competitive and resilient. Understanding these industry shifts is critical—not just for growth, but for long-term sustainability and safety.
Here’s what to expect in 2025:
Job Market
According to the Michael Bellaman, President and CEO of Associated Builders and Contractors (“ABC”) trade organization, the U.S. construction industry will need to “attract about a half million new works in 2024 to balance supply and demand.” This estimate considers the 4.6% unemployment rate, which is the second lowest rate on record, and the nearly 400k average job openings per month. A primary concern as we enter 2025 is to grow the younger employee pool, as 1 in 5 construction workers are 55 or older and nearing retirement.
While commercial construction has not yet been as heavily impacted as residential construction by the lack of workers, the demand for commercial will increase as more industries are anchored on U.S. soil. Think of bills such as the CHIPS and Science Act that allocated billions in tax benefits, loan guarantees, and grants to build chip manufacturing plants here. This is true regardless of political party; investing in American goods and manufacturing seems to be a bipartisan opinion.
AI and Robotics
At the end of 2024, PCL Construction noted that AI will be an integral part of the construction industry. Demand for control centers will drive up commercial production, though the workforce lack may present some challenges when it comes to a construction company’s productivity and workload capacity.
AI will not just change the supply and demand market, but also will be integrated in the day-to-day mechanics and sensors for safety measures within a construction zone. On top of the demand for microchips catalyzed by the CHIPS and Sciences Act, AI is used to “monitor real-time activities to identify safety hazards.” AI-assisted robotics can take on meticulous work such as “bricklaying, concrete pouring, and demolition while drones assist in surveying large areas.” We will start to see where the line is drawn between which jobs require a skilled worker and which can be handled by AI without disrupting the workforce.
Economic Factors
The theme of the years following COVID-19 has been to return the economy to what it was pre-pandemic, including slashing interest rates and controlling inflation. With this favorable economic outlook for 2025, construction companies can look to increasing their projects. On the residential side, the economic boom may drive housing construction to meet demand. On the commercial side, less inflation and lower interest rates for the business can lead to more developmental projects such as megaprojects and major public works. Economist Anirban Basu believes that construction companies may not reap these benefits until 2026 due to the financing and planning required.
Bringing production supply chains back to U.S. soil can help alleviate some of the global concerns such as the crisis in the Red Sea, international wars, and the high tariffs proposed by the Trump Administration. Again, economists are predicting this bountiful harvest in a few years rather than immediately.
Environmental Construction
Trends toward sustainability are leading the construction industry toward greener initiatives such as modular and prefab structures. Both options find the construction agency developing their structures outside of the building sites.
AI can also play a hand in developing Building Information Modeling (“BIM”) to better understand the nuances, possible pitfalls, and visualization of the project before construction begins. Tech-savvy construction agencies are already using programs such as The Metaverse or Unreal Engine for BIM and can significantly reduce project time, resources, and operational costs.
Employee Safety and PPE: Emphasis on employee safety – smart PPE and “advanced monitoring systems”
PPE requirements will far surpass the traditional protective gear (such as helmets, masks, and gloves). Construction sites may soon be required to supply smart PPE products that can scan a worker’s biometrics and environment to prevent medical anomalies or hazardous environmental conditions. Smart PPE devices will be enabled with Internet of Things (“IoT”) to ensure real-time data transmission and to use data analytics to track patterns or predict risks.
Conclusion
The construction industry’s future hinges on adaptability and innovation. By addressing workforce shortages, integrating AI-driven solutions, and adopting sustainable practices, companies can position themselves for success in a dynamic market. Whether it’s preparing for the long-term economic upswing or enhancing employee safety through smart PPE, proactive measures today can lead to stronger, more resilient operations tomorrow. Staying informed and prepared will be crucial for navigating the challenges and seizing the opportunities ahead.
Does Filing a Construction Lien Guarantee Payment?
I am often approached by contractors who wish to file a construction lien regarding either a residential or a commercial project. It is not atypical for many of these contractors to believe that filing a lien claim will guarantee the payment of the amount which is due to them. This belief is entirely incorrect, however, as filing a lien claim does not guarantee payment. Instead, all that it does is place a lien on a property, for no more than one year, during which the property cannot be sold or transferred without first addressing the lien claim. In order to receive payment for a lien claim, the lien must be foreclosed upon, which is discussed below.
Unless the property owner voluntarily pays the amount of the lien claim, the only way to receive payment once the lien is filed is to commence a lawsuit against the property owner. In that lawsuit a contractor would seek to foreclose on the lien claim in order to receive payment. During the lawsuit, the contractor would have to demonstrate that it had a contract, that it provided services, and that the owner failed to pay it for the materials and services it provided. In response, the owner could claim that the contractor breached the contract or assert other defenses. Once the lawsuit is finalized, whether by settlement or a trial, the contractor would then be entitled to enforce the lien claim to receive payment.
It is important to note, however, that a lien claim is only good for one year from the date it is filed. Prior to the expiration of that time, the contractor must file suit. Otherwise, the lien claim is no longer valid and must be discharged. If the owner demands, however, the contractor can be forced to file suit within 30 days. As such, a contractor must be aware of this possibility.
If you are a contractor that is considering filing a lien claim it is suggested that you consult with an attorney, as the process for filing a lien claim is technical, and thereafter, filing a lawsuit to perfect the lien claim is likewise technical. You should also be aware, however, that even if you do not file a lien claim that you may pursue an action against the owner to recover the fair value of the materials and services that you provided pursuant to your contract. Nonetheless, it is always suggested that you consult with competent counsel as to the best course of action in pursuing payment from a delinquent owner who has failed to pay for your services.
New Jersey Appellate Court Rejects Bid Protest: Archeologist Not Required to Be Registered under Public Works Contractor Registration Act
We recently blogged about New Jersey’s bid protest requirements for procurements solicited under the New Jersey Division of Purchase and Property (DPP) here. As we noted, public procurements by local governmental authorities fall outside the jurisdiction of the DPP. A recent intermediate appellate court opinion from January 10, 2025, Anselmi & Decicco, Inc. v. J. Fletcher Creamer & Son, Inc., provides some additional guidance on how local bid protests are administered and reviewed.
In Anselmi, the Passaic Valley Water Commission issued a solicitation for bids on a project to construct prestressed concrete tanks at the Levine Reservoir in Paterson, New Jersey. The solicitation included a requirement that all bidders and their subcontractors be registered in accordance with the requirements of the Public Works Contractor Registration Act (PWCR Act). The solicitation also included a requirement that an archaeologist be listed to monitor all construction activities on the site, a registered historic place.
An unsuccessful bidder on the project challenged the award to J. Fletcher Creamer alleging that the archeologist included in Creamer’s bid was not properly registered under the PWCR Act. The commission heard and rejected the protest finding that no archeologist or archeology practice is required to register under the PWCR Act.
The commission’s decision was then challenged in New Jersey Superior Court. The Superior Court upheld the commission’s decision finding that:
Creamer, as the lowest responsive bidder, was correctly awarded the Project. Further, the bid specifications, as well as state law, do not require that Creamer’s archaeologist be registered under the [PWCR Act] for this Project. Further, even if state law did require it, this defect would not be fatal and therefore would not automatically disqualify Creamer’s bid. Because Creamer’s bid is not disqualified, the [Commission] correctly awarded the Project to Creamer as the lowest responsive bidder.
Undeterred, the unsuccessful bidder then appealed the trial court’s decision to the Appellate Division of the New Jersey Superior Court.
On appeal, the unsuccessful bidder argued, in part, that the trial court erred in concluding that Creamer’s failure to identify an archaeologist registered under the PWCR Act was not a statutory, material defect. The appellate court described its standard of review regarding disputes on publicly bid contracts as follows:
When reviewing disputes concerning publicly-bid contracts, ‘the function of [the trial c]ourt is to preserve the integrity of the competitive bidding process and to prevent the misapplication of public funds. We use a deferential standard of review for governmental decisions in bidding cases. The standard of review on the matter of whether a bid on a local public contract conforms to specifications…is whether the decision was arbitrary, unreasonable[,] or capricious. If a public entity’s decision is grounded rationally in the record and does not violate the applicable law, it should be upheld.’
In contrast, we review issues of statutory interpretation de novo. Accordingly, when reviewing a local entity’s or trial court’s interpretation of a statute, we exercise plenary review. (internal citations omitted)
The appellate court affirmed the trial court’s and commission’s decisions rejecting the bid protest.
The appellate court found that the archaeologist on the project was not required to be registered under the PWCR Act because it was not being hired to perform “public work” as defined in New Jersey law:
Read in full context, the language of both the PWCR Act and the PW [Public Works] Act requires subcontractors to be registered when those subcontractors will be performing public work as defined by the PW Act and they are required to pay ‘prevailing wage[s]’ to their workers under State law. The archeologist on the Project will not be performing public work as defined by the PW Act. The [contract] makes clear that the archeologist will not be engaging in or performing any construction, reconstruction, demolition, alteration, custom fabrication, duct cleaning, repair work, or maintenance work. N.J.S.A. 34:11-56.26(5). Instead, the archeologist will be monitoring ‘all excavation activities’ and preparing ‘monitoring report[s].’
… In short, if the subcontractor is not performing public work as defined in the PW Act, the subcontractor does not have to be registered under the PWCR Act.
The Anselmi case illustrates how state-level bid protests outside of the jurisdiction of the DPP may be handled. Contractors working on state or local projects in New Jersey can expect some variation depending on the local authority issuing the procurement. As indicated in Anselmi, New Jersey courts are likely to be deferential to the governmental decision on the initial protest, so unsuccessful bidders may want to keep that in mind when evaluating whether to appeal a protest denial to a trial court or beyond.
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Key Considerations for the Construction Industry in 2025 Under President-Elect Trump
As President-elect Trump prepares to take office on January 20, the construction industry must anticipate shifts in trade policy, particularly concerning tariffs. These changes are expected to have significant implications for various sectors, including energy and clean technology.
The industry’s growing reliance on energy-efficient and clean technology components is driven by sustainability goals and regulatory requirements. For example, the US Department of Energy (DOE) guidelines on “Zero Emissions Building” provide a framework for sustainable practices, offering benchmarks for energy efficiency, zero on-site emissions, and clean energy use. Similarly, New York City’s Local Law 97 (LL97) sets ambitious emissions reduction targets for buildings, focusing on energy efficiency and renewable energy.
However, potential tariffs on imported clean technology materials could lead to increased costs, hindering compliance with regulations that rely on the imports of energy-efficient materials, and posing challenges to the adoption of sustainable building practices.
As these developments unfold, the construction sector must remain vigilant in monitoring policy changes that could affect the availability and cost of clean technology components in 2025.
Key Points to Watch in 2025
1. Evolving Tariff Policies:
The topic of tariffs under Trump’s second Administration has been a source of concern as President-elect Trump has already threatened to impose universal tariffs in addition to other country-specific tariffs.
At this juncture, we can anticipate an increase in tariff measures, but the specific measures are still unknown in part due to the uncertainty surrounding the rate of potential new tariffs, the countries they may affect, and the mechanisms that will be used to impose them, which will impact the timing any tariffs will take effect.
Because the Trump Administration’s trade policies have particularly focused on imports from Mexico, Canada, and China, such targets could significantly impact the import of construction materials, such as steel, aluminum, softwood lumber, concrete, glass, and binding materials.
For example, tariffs could benefit domestic manufacturers by increasing demand for locally produced materials, such as mass timber, but could create vulnerabilities for the construction sector that relies on imports raw materials used for energy efficiency and sustainable buildings that are sourced from Canada, Mexico, or China.
2. Material Cost Fluctuations:
Be prepared for possible increases in material costs due to tariff adjustments. This could lead to higher project expenses and necessitate budget recalibrations.
Contractors may face challenges in predicting material costs and securing project financing due to economic uncertainty and potential price volatility.
3. Supply Chain Adjustments:
Anticipate disruptions in supply chains as suppliers adapt to new trade regulations. This may result in delays and increased lead times for material availability.
Evaluate current supply chain dependencies and explore alternative sourcing options to mitigate risks.
How Can We Help?
As the new administration takes office, the construction industry must remain vigilant and proactive in addressing potential challenges posed by evolving tariff measures. Companies may need to adjust their project plans to account for potential cost increases and supply chain disruptions. Strategies such as seeking alternative suppliers, exploring domestic options, and reevaluating project budgets and timelines will be crucial in navigating these challenges.
Strategic planning and collaboration with trade experts and legal advisors will be crucial in navigating these changes. Here are some strategic ideas to consider:
Diversify Suppliers: Consider expanding your supplier base to reduce reliance on any single source, particularly those affected by tariffs.
Explore Alternative Materials: Investigate the use of alternative materials that may offer cost advantages or are less impacted by tariffs.
Contractual Safeguards: Review and update contracts to address “escalation,” “force majeure,” or other potential political risks, trade restrictions, and cost fluctuations.
Engage in Advocacy: Participate in industry advocacy efforts to influence policy decisions and promote favorable outcomes for the construction sector.
Monitor Trade Policy Developments: Monitor announcements from the new administration regarding free trade agreements (FTAs) and tariff adjustments that could affect material costs. These could include benefits from the United States-Mexico-Canada Agreement (USMCA) and exclusions from tariffs, such as the Section 301 tariffs on products from China.
Industry members seeking detailed analysis and guidance are encouraged to consult with trade experts and legal advisors specializing in construction and trade policy.
Beachfront Boundaries: Regulatory Takings Clarified
Jones v. Town of Harwich involved a dispute over the application of the Wetland Protection Bylaw and Regulations in Harwich, Massachusetts (“Wetland Protection Regulations”). In 1958, Lois H. Jones (“Jones”) purchased two distinct lots separated by a private driveway. The lots were known as 5 and 6 Sea Street Extension (“5 Sea Street” and “6 Sea Street”). 5 Sea Street was, and remains, a vacant lot that abuts the ocean. 6 Sea Street is improved with a four-bedroom house. In 1999, Jones sold 6 Sea Street. The record in the case indicated that Jones long intended to construct a single-family dwelling on 5 Sea Street.
In 2011, Jones filed a Notice of Intent with the Harwich Conservation Commission, proposing construction of a single-family residence on 5 Sea Street. In 2012, the Commission issued a denial Order of Conditions. Later that year, the Massachusetts Department of Environmental Protection issued a Superseding Order of Conditions, denying the project under the Massachusetts Wetlands Protection Act. In 2013, the Town of Harwich changed the tax assessment designation associated with 5 Sea Street to “unbuildable” and reduced the assessed valuation from $1,434,500 to $24,000. In 2015,1 the DEP, Jones, and some abutters, reached a settlement, which included a Final Order of Conditions. Nonetheless, the Harwich Conservation Commission maintained its position that Jones’s proposed construction would violate the Wetlands Protection Regulations, as well as the state wetlands regulations, and denied approval.
Jones filed suit against the Town of Harwich in the U.S. District Court for the District of Massachusetts, alleging that the application of the Wetland Protection Regulations to 5 Sea Street constituted a regulatory taking, entitling her to compensation. The Town argued that Jones could only recover if the Wetland Protection Regulations were the “but for” cause of 5 Sea Street being unbuildable. The Town argued that since state wetlands regulations also precluded developing 5 Sea Street, the local Regulations could not be the but for cause of Jones’s harm, and therefore, she could not recover from the Town. The District Court rejected this argument on summary judgment because the record contained evidence that the DEP’s 2015 decision could be amended, and the project might be allowed under state wetland regulations.
Next, the Court applied the cornerstone Penn Central test to determine whether or not the Town’s application of the Wetlands Regulation could constitute a regulatory taking. Penn Central Transportation Co. v. City of New York, 438 U.S. 104, 124 (1978). The factors applied by the Court include: economic impact of the Regulations on the Plaintiffs; the extent to which the Regulations have interfered with distinct investment-backed expectations; and the character of the governmental action.
The District Court found that the significant decrease in the property’s value supported a substantial economic impact as a result of the Town’s Regulations. Additionally, the extent to which the Regulations interfered with investment-backed expectations was not appropriate for summary judgment because the parties presented competing arguments and evidence as to Jones’ intention to develop the property, and the alleged “windfall” that her estate would receive from development. Id., at 6. Finally, the District Court held that the character of the governmental action could be equivalent to a typical taking because the Regulations prevent any structure on the lot despite being generally applicable to all property.
Jones is a helpful reminder that application of local regulations may constitute a regulatory taking.
1 Jones passed away in 2014, but her estate continued her efforts to develop 5 Sea Street.
New Antidumping and Countervailing Duty Petitions on Temporary Steel Fencing from China
On January 14, 2025, ZND US Inc (Petitioner or ZND), domestic producer of temporary steel fencing, filed petitions with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) seeking the imposition of antidumping duties (AD) and countervailing duties (CVD) on temporary steel fencing from China. Such structures include fencing for construction sites, security perimeters, events, and animal kennels. The scope does not include permanent steel fencing.
Under U.S. law, a domestic industry may petition the United States government to initiate an AD investigation into the pricing of an imported product to determine whether it is sold in the United States at less than fair normal value prices. For market economies (which China is not), normal value is home market or third-country price, or actual cost plus reasonable profit of the foreign producer/exporter. For deemed non-market economy China, normal value is a constructed cost plus deemed reasonable profit based on surrogate values in a market economy deemed of comparable level of economic development to China.
A domestic industry also may petition for the initiation of an investigation of alleged countervailable subsidies provided by a foreign government to producers and exporters of the subject merchandise. DOC will impose AD and/or CVD duties on subject merchandise if it determines that imports of that product are dumped and/or subsidized, and if the ITC also determines that the domestic industry is materially injured or threatened with such injury by reason of imports of the subject merchandise.
The immediate activity will occur at the ITC. In the preliminary stage, the threshold to find injury from the accused imports is low such that the ITC generally finds sufficient indicia of injury to a U.S. industry from the accused imports to continue the AD/CVD investigations. If the ITC votes to continue, then the investigation moves to DOC.
If the ITC and DOC make preliminary affirmative determinations, U.S. importers will be required to post cash deposits in the amount of the AD and/or CVD duties for all entries of the subject merchandise entered on or after the date of DOC’s preliminary determinations being published in the Federal Register. Note that if there is a surge of imports from the subject countries following the filing of the petitions, DOC can find critical circumstances for a particular subject country (or producer) and instruct U.S. Customs & Border Protection (CBP) to collect cash deposits retroactively to 90 days before the date of publication of the preliminary determination.
Following further factual investigation, verification, and briefing, DOC can change the preliminary AD/CVD rates in its final determinations. AD/CVD Orders will only issue if both the DOC and ITC make affirmative final determinations. The ITC final injury investigation is more rigorous than its preliminary injury investigation, where historically 30% or so of petitions are rejected at that stage.
Scope
Petitioner requests the following product scope for the investigation:
“The merchandise subject to this investigation is temporary steel fencing. Temporary steel fencing consists of temporary steel fence panels and temporary steel fence stands. Temporary steel fence panels, when assembled with temporary steel fence stands or other types of stands outside of the scope, with each other, or with posts, create a free-standing structure. Such structures may include, but are not limited to, fencing for construction sites, security perimeters, and events, as well as animal kennels. Temporary steel fence panels are covered by the scope regardless of whether they attach to a stand or the type of stand to which they connect.
Temporary steel fence panels have a welded frame of steel tubing and an interior consisting of chain link, steel wire mesh, or other steel materials that are not more than ten millimeters in actual diameter or width. The steel tubing may surround all edges of the temporary steel fence panel or only be attached along two parallel sides of the panel. All temporary steel fence panels with at least two framed sides are covered by the scope, regardless of the number of edges framed with steel tubing.
Temporary steel fence panels are typically between 10 and 12 feet long and six to eight feet high, though all temporary steel fence panels are covered by the scope regardless of dimension. Temporary steel fence panels may be square, rectangular, or have rounded edges, and may or may not have gates, doors, wheels, or barbed wire or other features, though all temporary steel fence panels are covered by the scope regardless of shape and other features. Temporary steel fence panels may have one or more horizontal, vertical, or diagonal reinforcement tubes made of steel welded to the inside frame, though all temporary steel fence panels are covered by the scope regardless of the existence, number, or type of reinforcement tubes attached to the panel. Temporary steel fence panels may have extensions, pins, tubes, or holes at the bottom of the panel, but all temporary steel fence panels are covered regardless of the existence of such features.
Steel fence stands are shapes made of steel that stand flat on the ground and have one or two open tubes or solid pins into which temporary steel fence panels are inserted to stand erect. The steel fence stand may be made of welded steel tubing or may be a flat steel plate with one or two tubes or pins welded onto the plate for connecting the panels.
Temporary steel fencing is covered by the scope regardless of coating, painting, or other finish. Both temporary steel fence panels and temporary steel fence stands are covered by the scope, whether imported assembled or unassembled, and whether imported together or separately.
Subject merchandise includes material matching the above description that has been finished, assembled, or packaged in a third country, including by coating, painting, assembling, attaching to, or packaging with another product, or any other finishing, assembly, or packaging operation that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the temporary steel fencing.
Temporary steel fencing is included in the scope of this investigation whether or not imported attached to, or in conjunction with, other parts and accessories such as hooks, rings, brackets, couplers, clips, connectors, handles, brackets, or latches. If temporary steel fencing is imported attached to, or in conjunction with, such non-subject merchandise, only the temporary steel fencing is included in the scope.
Merchandise covered by this investigation is currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under the subheading 7308.90.9590. The HTSUS subheading set forth above is provided for convenience and U.S. Customs purposes only. The written description of the scope is dispositive.”
Foreign Producers and Exporters of Subject Merchandise
A list of foreign producers and exporters of temporary steel fencing, as identified in the petition, is provided in Attachment 1.
U.S. Importers of Subject Merchandise
A list of U.S. importers of temporary steel fencing, as identified in the petition, is provided in Attachment 2.
Alleged Margins of Dumping/Subsidization
Petitioners allege the following dumping import duty margins:
China: 405.19%
These are only estimates based on data most favorable to Petitioner. DOC generally assigns duties at the highest alleged dumping rate to foreign producers and exporters who fail to cooperate during the investigation as to answering DOC questionnaires to obtain an AD/CVD margin based on their actual situation.
Petitioner does not provide specific subsidy rates in the petition.
Potential Trade Impact
According to official U.S. import statistics, imports of the subject merchandise totaled 38,423 short tons in 2024, representing approximately 85% of all imports of temporary steel fencing into the United States.
Estimated Schedule of Investigations
1/14/2025
Petition filed
2/28/2025
ITC preliminary injury determination
4/9/2025
DOC preliminary CVD determination, if not postponed
6/13/2025
DOC preliminary CVD determination, if fully postponed
6/23/2025
DOC preliminary AD determination, if not postponed
7/12/2025
DOC preliminary AD determination, if fully postponed
12/26/2025
DOC final AD and CVD determinations, if both preliminary and final determinations fully postponed
2/9/2026
ITC final injury determination, if DOC’s determinations fully postponed
2/16/2026
AD/CVD orders published
Practical Considerations for Navigating Tariff Risk on Construction Projects
As the second Trump administration begins next week, developers, contractors, subcontractors and suppliers are evaluating the extent of the construction industry’s international ties – and contractual exposure to potential tariff increases. While President-elect Trump has been forthright about his intent to impose and increase tariffs, he has not provided details about which products, goods, and countries may be affected.
This uncertainty leaves many in the construction industry concerned, and both upstream and downstream parties are carefully negotiating contractual risk of changes in tariffs. Broadly speaking, tariffs are typically considered import (or export) taxes imposed on goods and services imported from another country (or exported). In the United States, Congress has the power to set tariffs, but importantly, the president can also impose tariffs under specific laws (most notably in recent years, the Trade Act of 1974), citing unfair trade practices or national security.
Many different contractual provisions may be impacted by the introduction of new tariffs: tax provisions, force majeure provisions, change in law provisions, and price escalation provisions, for example. Procurement contracts routinely rely on Incoterms, which allocate tariff risk to either buyer or seller depending on the selected Incoterm. Negotiating an appropriate allocation of risk of changing tariffs can be as much an art as science and requires consideration of how tariffs are administered and their effects on the market. Consider, for example, the following:
Tariffs are paid by the importer of record to U.S. Customs & Border Protection. If a contractual party is not the importer of record, such party will not be directly liable for payment of tariffs.
Instead, tariffs raise the ultimate cost of goods or services because importers increase their price to buyers to account for the tariffs.
Tariffs also tend to indirectly increase the cost of goods or services related or equivalent to the goods or services subject to tariffs by raising demand for domestic or non-affected substitute goods or services.
Some goods and services are higher risk than others (e.g., goods originating from China, and potentially in a second Trump administration, goods originating from Canada and Mexico). Understanding the extent of the international reach of a construction project’s supply chain may assist in evaluating exposure and negotiating appropriate relief from imposition of new or increased tariffs.
Having a working knowledge of how tariffs are implemented and their impacts on related markets is important to assessing and mitigating contractual risk. Parties to a construction contract may have different methods for managing tariff impacts. A supplier may choose to source goods from less risky countries, even if the cost of such goods is incrementally higher than their Chinese equivalent in the short term. A buyer may choose to enter into a master supply agreement, allowing the buyer to set a long-term fixed price on a guaranteed volume of goods that in turn permits the seller to better forecast its demand and supply chain. Many developers and contractors may negotiate shared risk of changed tariffs, establishing a change order threshold or cost-sharing ratio. Ultimately, those who consider and carefully negotiate provisions addressing changes in tariffs will be better prepared to face and manage their economic impact.
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