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Global Vantage: Trade wars and tariffs: what’s covered under UK standard construction contracts?

April 2025

The recent introduction of US tariffs on goods and materials from countries across the globe has triggered significant international market reactions and economic shifts. In this update we examine the importance of the announcement, its potential impacts on contractual and commercial deals on construction projects (both now and in the immediate future) and outline what steps businesses may take now to try to protect their position.

The “Liberation Day” announcement – what is new?

Last week, US President Donald Trump declared “Liberation Day” as he announced sweeping tariffs on globally sourced goods and materials. Tariffs are taxes which apply to goods imported from other countries and the amount charged is usually a percentage of the goods’ total value. This means that entities bringing such goods into the US would be required to pay the applicable tariff amount to the US government.

During the announcement, a 10% baseline on imports to the US was revealed, which will affect UK exports. Other countries will face steeper tariffs – some exceeding 50% – with EU nations set to be hit by a 20% rate soon. More recently, press reports have confirmed that Trump authorised a 90 day pause on the tariff plan (applicable in the most part) to enable trade negotiations to take place.

Trump has also confirmed the application of previously announced tariffs on certain goods, such as aluminium and steel at 25% – something which will directly impact those working in the construction and infrastructure sectors. Some economic commentators have pointed to potential increases in the cost of timber and machinery or products required to build new houses and other infrastructure projects, whilst others question the impact any changes to the availability of international funds might have in practice.

What impact could these tariffs have?

The announcement reportedly followed calls to boost the US economy (and tax or revenue raised), whilst encouraging US consumers to buy more American-made goods. Others, including Trump, have cited the importance of tariffs to resilience and national security. However, it looks like a potential complex and evolving trade war is on the cards, with several global leaders and politicians reportedly condemning the measures and some countries now considering whether to impose their own tariffs on American goods. For example, we understand that EU countries are in the process of finalising a response aimed at protecting European businesses and producers; whereas Canada’s Prime Minister, Mark Carney, has signalled intent to help protect workers and the economy. Since “Liberation Day” China has announced a retaliatory levy of 84%, and Trump responded by doubling down – stating that if these levies are not revoked, he will impose a total 125% tariff on imported Chinese goods with immediate effect. The situation remains in flux!

The global stock market response has also been widely reported, with the value of shares in certain companies decreasing since the announcement. Importantly, once the tariffs are in place, the value of the dollar may change, further impacting the import costs for UK businesses and resulting in increased prices for UK consumers. However, some economists and press reporters point to the potential greater availability of goods with cheaper costs, at least to begin with, as companies attempt to direct sales of their goods to different regions instead of to the US.

The changes may also impact the wider economy and cost of inflation. In turn, this could affect the overall costs of construction projects and the running/overhead costs for businesses in the sector. It could also reduce costs of borrowing if central banks embark on an interest rate cutting process to counteract the economic slowdown. Further, some jurisdictions are apparently considering or have prohibited US firms from bidding on local projects in retaliation to the US tariffs. Clients must consider and be aware of how a US business is specifically defined under such rules.

UK standard construction industry contracts

The main standard construction industry forms of contract used within the UK do not expressly address the issue of changes to tariffs, or their associated potential impact on the cost and programme to projects.

Aside from some reimbursable option contracts (such as the NEC Option E) which may allow for recouping certain increases in cost as part of the Defined Cost (although not an allowance for any delay), the UK standard industry forms do not specifically address the effect of such changes. When considering how best to manage potential impacts or risks, entities should stay informed of the position on tariffs (an evolving point at present) and any other trade barriers that could affect project costs – including quotas, licences, or local content requirements or timelines.

For the purpose of this article update, we refer to all these elements or risks collectively as “Trade Events”. We will now turn to explore how such Trade Events may apply in practice and/or be managed under some of the most popular standard industry forms of contract; namely, the JCT and NEC. Notably, each form of standard industry contract will adopt a slightly different approach to the identification, notice and treatment (or consequences) of Trade Events, including their risk allocation, and so it is important for parties to carefully consider the contract terms and conditions, together with any agreed amendments to the standard position.

JCT Contracts

It is possible that the change in law ground under the Relevant Event provision (i.e. Clause 2.26.8 of the JCT Design & Build Contract 2024 (JCT/DB 2024)) may provide some recourse where the UK Government may exercise statutory powers after the Base Date to impose Trade Events. However, there will inevitably be several contractual and evidential hurdles to overcome.

Firstly, the relevant Trade Event must be from an exercise of statutory power and there may be some Trade Events that do not fall within the scope of this description.

Secondly, the exercise of statutory power must affect the execution of the Works (as defined), and this may be limited if the Trade Events apply only to one country, i.e. the US.

Relevant Events under the JCT relate to an entitlement to additional time but not money.  While the imposition of a Trade Event may impact programming and timing on projects, for instance due to increased border paperwork or sourcing from alternate suppliers, the greatest impact will be the increased costs. While the current JCT 2024 suite of contracts includes a ground for a Relevant Matter for exercise of statutory power after the Base Date affecting the execution of the Works (clause 4.21.7 of JCT/DB 2024), this Relevant Matter is optional and would need to be selected in the Contract Particulars to apply. Without the agreed inclusion of this optional clause there is no other JCT Relevant Matter that would likely give rise to additional money in respect of a Trade Event.

The change in law grounds above relate only to the exercise of statutory powers by the UK Government, devolved administrations or local authorities.  If the US, other national governments or trading blocs such as the EU impose Trade Events increasing the respective cost of component parts of any plant, materials or equipment which in turn pushes up the overall cost of such items however, then this will not give rise to any entitlement to either additional time or money. It would therefore be important for a party impacted by this to properly understand, document and monitor whether any impacts to project costs have been caused by the future actions taken by the UK Government and how best to manage these under the contract.

Force Majeure provisions are a creature of contract in our jurisdiction.  A Force Majeure event is usually described as an event or circumstance outside of a parties’ control and which prevents that party from being able to perform its contractual obligations. Force Majeure is even more unlikely to give protection as it is undefined in the JCT Relevant Events. This means that the courts would likely apply a test to see if an event outside the control of either party prevented progress or completion of the Works in line with the agreed contract terms.  The imposition of a Trade Event is unlikely to prevent the Works, although it could directly impact, disrupt or delay them, but it is more likely it will make them more expensive.  Additionally, since there is no Relevant Matter for Force Majeure under the JCT, even if a Trade Event could give an entitlement to additional time there would be no basis for additional monies to cover the cost of the Trade Event. Further, the party will not be able to avoid its contractual obligations simply because a contract becomes more expensive to perform.

NEC Contracts

Although the NEC has greater scope of the treatment of Trade Events as a compensation event (i.e. relating to a Consultant’s/Contractor’s entitlement to additional time and/or money), this is contingent on Option X2 (Changes in Law) applying to the contract.

Force Majeure is also unlikely to give any comfort to contracting parties appointed under the NEC as under clause 60.1 (19) of the ECC this must be an event that stops the whole of the works, or delays completion, that neither party could prevent and that an experienced contractor would have judged at the Contract Date to have such a small chance of occurring that it would have been unreasonable to have allowed for it.  The imposition of Trade Events is likely to fail on a number of these tests, and in respect of new contracts will almost certainly fail the “foreseeability” limb of the test.

If a party feels that a claim in respect of any Trade Events can be sought under the contract (i.e. especially if the standard contract terms have been amended to provide for this), then it would be important to comply with the early warning and compensation event regimes. Prompt and proactive notification and quotation requirements apply under the NEC suite of contracts, failure to comply with which may time bar the claim and prevent entitlement.

Other options for parties to explore

Upstream contracts: given that the main standard industry forms of construction contract provide limited protection in respect of Trade Events, aside from practically reviewing supply chain procedures for resilience and assessing possible alternatives less affected by Trade Events, the main way to remove or reduce this risk will be via contractual amendments.  However, since we are in the early days of the new Trump administration and its tariff “roll out”, we have not yet seen drafting seeking to address this particular risk in the UK.  We have observed specific drafting aimed at addressing this risk in certain international contracts and some international standard forms of contract already deal with changes in tariffs, duties and taxes. The Canadian Construction Documents Committee contracts state, for example, that the owner will bear the price risk.

A party which is impacted by Trade Events could potentially seek an amendment to their contracts prior to concluding these with the Employer/Client to ensure that this risk is adequately addressed under the variation and compensation event regimes. However, passing of this risk to the Employer/Client wholesale may not be commercially acceptable to them in all instances. The position will ultimately depend on the project, the applicable works or services, and the parties’ relationship and respective bargaining strengths. We may also see parties seeking to assert that Trump has indicated or highlighted plans to impose tariffs since the November 2024 election, and previously during his campaign trail, to demonstrate that this could or should have been reasonably foreseeable by the main contractor or consultant to be appointed.

The nature of the project is also important in the context of public sector works. UK procurement law means that the parties’ ability to amend the tendered contract terms to address the risk of Trade Events is likely to be more limited.

Downstream contracts: parties should consider whether it is possible to seek to address or impose the risk of additional time and/or cost linked to Trade Events on its supply chain. Again, whether this is possible will depend on the nature of the project, the subcontract works or services, and the parties’ overall relationship.

Potential amendments and risk management points

Each contractual relationship and project will differ. As a result, each set of contract terms and conditions (including any amendments or optional clauses to standard contracts) and fees will need to be carefully considered in the circumstances.

If you do feel that your contract addresses Trade Events, then it will be important to comply with the applicable notice provisions and any mitigation measures. It would be prudent to keep copies of all communications/notices exchanged on this point, together with corresponding documents or records to evidence the position (and any programme or budgetary impacts as a result). Appropriate record-keeping should also assist in respect of any future negotiations and/or dispute resolution.

If it is possible to seek specific contractual amendments on live or future contracts, then contractors or consultants would be well advised to consider:

1. What the agreed contractual and commercial model is, and which party carries the price risk (and any changes in the same).
2. Whether there are any optional clauses that could assist under the relevant industry standard form that give rise to an entitlement for additional time and/or money for change in law (such as JCT/DB 2016 clause 4.21.7 or NEC Option X2). Parties may be more familiar with the application and operation of these optional standard clauses. If so, ensure that these are selected and incorporated into the contract. Take care with regards to any amendments which seek to alter the standard wording or risk allocation in respect of the standard terms and conditions or optional clauses.
3. If a contractor or consultant is seeking to include specific drafting aimed at expressly addressing Trade Event risk, it is prudent to ensure that it covers:
   1. an entitlement both to additional time and money for the effects of the Trade Event on the Works or Services;
   2. that the entitlements covered under the contract include not only Trade Events caused by the UK Government (including devolved administrations or local authorities) but also Trade Events caused by any foreign government body or international trading bloc which impact or influence the Project, and Works or Services;
   3. that the entitlements are drafted as broadly as possible, i.e. to cover the progress or cost of the Works or Services, as well as the supply and cost of any plant, materials or equipment or any component part.  In our view, referencing component parts will be key if the component elements may be (or become) subject to Trade Events but the finished items are not (since the overall cost will increase due to it being composed of more expensive components).
4. Ensure that any entitlement under subcontracts or supply agreements provides for a no more generous position or entitlement for time or money for a Trade Event than the contractor or consultant would be entitled to under its main contract upstream. Any mismatch in terms could create tension and increase the overall cost, risk, administrative burden as a result.

The parties will need to carefully consider and set out which types of Trade Events are covered by the contractual provisions, together with the grounds for claiming and demonstrating an entitlement to relief. If the parties have agreed to each accept responsibility for specific types of Trade Events this needs to be clearly documented. Some clauses may prescribe the nature of record-keeping and monitoring requirements, together with the parties’ mitigation obligations.

Any amendments to the contract should be checked to ensure that they are clear and unambiguous, to minimise the risk of future disagreement or dispute. Amendments should also be drafted in a manner that does not inadvertently cut-across or undermine other contractual mechanisms. It may therefore be prudent to consider such provisions (and scenarios) with your lawyers, as well as commercial and operational teams.

In addition, careful records should be kept, as far as possible, of how the component parts within finished materials purchased for construction have been tariffed. The component parts contained in a tunnel boring machine (TBM), for example, may have a different country of origin than the final TBM, and those component parts may have been tariffed when shipped to the TBM country of assembly. How are those tariffed components within the tariffed finished good tracked for cost purposes, and can those cost impacts then be recovered under the contractual mechanisms discussed above?

Concluding observations

The construction industry continues to face several political and economic headwinds and uncertainties this year. The announcement on tariffs remains news which the international industry and markets are responding to, and parties will need to get to grips with the changes once in force. As a result, the associated legal and commercial impacts and risks are evolving issues that we will continue to monitor together with our clients.

Nonetheless, there are actions businesses can take now to protect their projects and live contracts. Parties should carefully consider how their existing contracts address unanticipated price increases and delays resulting from the introduction of the new tariffs and then take steps to comply with any corresponding contractual notice provisions. Equally, parties will need to understand what live tenders and future contracts include in respect of this point, and any required provisions or risk management measures. Practically, parties should also review their supply chains for resilience in the face of these Trade Events.

If you have any questions in respect of the above, and how this might apply to your construction contracts or appointments and projects, then please contact the authors. Should you require specific advice or support on any drafting amendments or in handling contractual disputes, then we would be happy to assist.

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