Tariffs on Materials - Minimizing the Impact on Construction Growth

It has been more than one year since the Trump administration imposed a 25 percent tariff on steel and a 10 percent tariff on aluminum imports from major producers in Canada, Mexico, and the European Union. During this time, the U.S. has been in a dispute with Canada over lumber imports, while new tariffs have been imposed on a plethora of Chinese imports.

It has all combined to drive up the cost of many building materials by as much as 20 percent. Specifically, the Associated General Contractors of America released data that shows pricing for aluminum products was 20% higher in June 2018 than the year before. Lumber and plywood saw increases of 18.3 percent during the same period, while steel products rose 12.3 percent.

The Challenges of Material Price Increases to Contractors

While the last five years have seen sustained growth in construction, the imposition of the tariffs has introduced new challenges for contractors as they navigate supply chain uncertainties, while mitigating risks and investing in new projects.

Contracts are usually signed between contractors and developers with a firm, agreed-upon delivery price. This is done before any material is purchased. Knowing that a project’s timeline for completion can span several months (or years), calculating estimates for future material costs at the time the contract is signed is an “educated guess”. Material price increases caused by the sudden imposition of tariffs often result in the contractor being stuck with absorbing the increase.

One Way To Handle Price Escalations in Contracting

Price escalation clauses are being included in more and more contracts these days as a way to handle material price increases that occur after contracting. The provisions usually identify the specific types of materials that​ are covered and the baseline price for those materials.

The Cleveland Construction Way to Bid on Projects

While Cleveland Construction cannot control the imposition of tariffs, we constantly re-evaluate the effect they have on material pricing as we bid on projects. With nearly forty years in the construction industry, Cleveland Construction understands the importance of budget and estimate accuracy. That is why we maintain a national database of design professionals, contractors, subcontractors, vendors, and suppliers to help us arrive at the most precise estimate possible for any project. It is the way we stay on the money. It’s the reason happy developers often exclaim... “YOU NAILED IT!”