While there is uncertainty regarding U.S. trade policy, the recent 25% tariff increases on U.S. steel and aluminum are already impacting construction planning. Steel is a key component of framing, rebar, and other construction materials. Higher costs and potential supply chain disruptions create challenges for contractors.
To manage tariff risks, review contracts with suppliers for any force majeure clauses covering tariff-related delays or cost changes. Be aware of supplier cancellation and renegotiation rights if tariffs significantly impact costs. Also, diversifying supply chains by reducing reliance on specific countries or suppliers subject to higher tariffs should be considered to help minimize risks associated with geopolitical tensions and supply chain disruptions.
Builder’s Risk Insurance
Builder’s Risk protects property and materials while under construction or during renovation. The policy covers property on construction sites when it is damaged or destroyed by fire, vandalism, or other unexpected events. Coverage ends when the project is complete.
When purchasing Builder’s Risk insurance on a large or complex project, consider including an escalation clause, which provides for automatic increases in coverage limits in the event of labor or material price increases. As the costs of materials and labor rise, your insurance coverage keeps pace with these increases, protecting the project from being undervalued and underinsured. It’s important to note that escalation clauses require detailed definitions of trigger events, adjustment mechanisms, and notification procedures. Therefore, use clear, concise definitions in escalation clauses.
Another option to consider is setting up a contingency fund, allocating a percentage of the budget for unforeseen expenses. The fund will serve as a safety net against unexpected costs so that you can continue working on the project without substantial delays. However, it’s important to establish rules on how the money in the fund will be spent and to implement approvals for accessing the fund.
It's critical to keep track of market movements and economic indicators, including trade policies, inflation, material pricing, and labor market conditions. This helps to anticipate prospective cost increases and adjust project methods accordingly. Conduct regular project audits and reviews to compare current expenses to the budget. This proactive measure aids in the early detection of irregularities, allowing for timely corrective steps.
Note: Please consult your legal or financial professional for further information and application to your business or individual needs, including a review of the policy’s terms and conditions for the available coverage.