Navigating the Uncertainty: the Impact of Recent US Tariffs on the UK Construction Sector

The fallout of President Trump’s tariff announcement on 2 April 2025 will be dissected and felt by many for weeks and months to come.

The US has implemented a series of tariffs, including a 25% tariff on steel and aluminium imports, a 54% tariff on imports from China, and a blanket 10% tariff on all UK imports. These measures are likely to lead to significant increases in material costs and supply chain disruptions, with the potential to affect project timelines and budgets. The full extent of any retaliatory tariffs remains to be seen, with the UK and EU seemingly taking very different approaches. China has already announced retaliatory tariffs of an additional 34%. The volatility and unpredictability of these trade policies have introduced a new level of complexity to international business operations and are changing the status quo of global trade.

The US is the second largest export market for UK construction materials [1]. While at first glance it may only be seen to affect the US, the financial uncertainty it has triggered across the global markets cannot be ignored – affecting investor confidence, prices of raw materials and availability of capital, among other things. Taking commercial decisions purely to mitigate the impacts of tariffs alone will often affect performance and quality rather than mitigating the overall risks associated with tariffs. Adopting a holistic approach to the effects of these risks will enhance overall resilience to geopolitical events.

This is not the first time the industry has had to survive through political and economic upheaval in recent years - Brexit, Covid, material and fuel costs, and high inflation episodes have all caused some disruption. The world is becoming increasing more volatile. So, what can contractors do to protect themselves from the ever-present risks of geopolitical turbulence?

Mitigating risk: steps to take in current projects

When faced with this level of geopolitical volatility midway through a project, parties may find they do not have sufficiently robust contractual protections. The first step is to review contracts to understand risk profiles and entitlements to time and money. Although infrequently used and often very complicated, most standard form contracts include optional indexation of cost fluctuation provisions. If this is the case, ensure these have been managed and updated appropriately. Informed decisions can then be made to mitigate price volatility.

Early and direct engagement with employers can be beneficial, as some may collaborate on the impacts of geopolitical events, similar to the response during COVID-19. Understanding an employer’s willingness to collaborate early on will lead to more informed and better commercial decisions across a contractor’s portfolio of projects.

Finally, particularly on projects with global supply chains where orders have not yet been placed, consider supply chain diversification. This would seek to minimise potential disruption, particularly in markets such as China and Southeast Asia.

Building in resilience: the approach to future projects

Commonly used published contract forms provide pre-pack drafting options to try to mitigate against economic uncertainties, and smooth out the impact of price changes and government taxes.

The Fluctuations Options in the JCT suite are one such example, although traditionally not commonly used given the preference of employers for price certainty. There are three options, A, B and C. 

• Option A allows for upward or downward fluctuations on employment taxes and duties and taxes on materials, goods and fuels, including, perhaps most importantly in light of recent news, duties and taxes (other than VAT) payable on import, be that changes to existing rates, or the introduction of new duties and taxes.
• Option B goes further to include fluctuations in labour cost as well as changes in employment taxes, and the market prices of materials, goods and fuels, which is deemed to include any duty or tax payable on it (other than VAT).
• Option C offers an indexing solution, adjusting prices by reference to a detailed set of formulae.

The NEC contracts offer an optional indexation provision, Option X1, under which the parties use a set of indices to determine any change to the Prices at each assessment date. This approach can protect against big economic and inflationary swings and help smooth out bumps in the ride but might not be of as much use in the context of e.g. tariffs imposed on imported products, or shortages in material supplies.

FIDIC Red and Yellow Books (2017) both have optional provisions for contract price adjustment for changes in the price of labour, goods etc. They are more often used on longer term, complex construction projects. The use of such adjustment provisions is not straight forward. The parties must prepare and incorporate a schedule of cost indexation to the contract, which includes complicated formulae for the calculation of how the contract price is to be adjusted. This exercise normally requires separate expert input, especially on a project dealing with multiple currencies. If this schedule is not prepared, or the formulae are used incorrectly, cost fluctuations provisions are deemed not to apply to the contract, despite the parties’ intentions.

It’s important to remember that all these options allow prices to move up as well down, are not intended to impact profits either way, and as mentioned above, historically they don’t get used that often.

Given potential disruptions or costs during a project, parties should consider drafting specific provisions for such events. We saw similar behaviours during Brexit, Covid, and recent material supply issues, where parties negotiated terms to de-risk the impacts of, for example, materials being held up in port, additional import taxes, emergency site shutdowns or social distancing rules, and unexpected price hikes. This approach allows parties to identify and consider the risks that could have the biggest project impacts, and work out a way to apportion that risk between them – by allowing time relief, additional costs, or a right to substitute materials or suppliers – and to legislate for the apportionment carefully so that each party can be comfortable.

The right solutions will be different for each project and for each business and ultimately businesses should be having a look at their project portfolio, supply chain, and risk appetite in order to determine the right approach to their contracting in this current environment.