Business attorneys should proactively reassess their clients' contracts in response to recent tariffs and the possibility of future tariff increases. These changes can significantly impact clients’ supply chains, pricing structures, and contractual obligations across various industries, and clients must be prepared for the effects this can have on their agreements.

By reviewing and revising contracts now, attorneys can help clients mitigate risks, maintain compliance, and ensure financial stability.

While one could argue that tariff increases have at least some impact on all businesses, there are several industries that are particularly vulnerable: manufacturing, automotive, technology, retail and consumer goods, agriculture and food production, and construction.

In each industry, increased costs pose a risk for corporate budgets and project schedules, undoubtedly affecting their bottom line. For example, increased costs on construction materials such as lumber, steel, and aluminum will increase overall construction costs, and could delay projects. If construction contracts are not properly drafted, parties could carry exposure far beyond what was initially intended.

Having a strong contract from the beginning of any deal will protect clients from the foreseeable (and even the unforeseeable) challenges that stem from increased costs and material shortages.

To help limit exposure, attorneys should focus on the following key clauses when drafting and reviewing client contracts.

Force Majeure Clauses

Tariff increases can significantly impact business operations, but many contracts may not explicitly include tariff increases as a force majeure event.

Depending on the client’s industry, the client may or may not want tariff increases to constitute a force majeure event, to relieve them from performance in the wake of increased costs or supply chain issues.

This raises a particularly poignant point: that force majeure clauses should be carefully constructed, tailored to the specifics of the deal subject to the contract. A broad force majeure clause leads to ambiguity – requiring each contracting party to fight for the outcome they believe the clause requires. Certain clients may benefit from adding a renegotiation requirement in lieu of a complete excuse from performance.

Attorneys should consider the potential outcomes and risks associated with adding tariff increases to their clients’ force majeure clauses, and advise accordingly.

Price Adjustment and Cost-sharing Provisions

Having contractual provisions that allow for flexible pricing structures, cost-sharing or cost-shifting, and renegotiation can go a long way when dealing with unforeseen price increases.

For example, contractors should ensure their contracts include provisions that allow for price adjustments based on increased import duties to prevent scenarios where they are stuck covering the costs of increased materials and supplies on a project.

This can often be a sticking point during the bidding process or direct negotiations. If a deal reaches impasse due to cost concerns, negotiating cost-sharing mechanisms between the parties (i.e., contractor and owner) to distribute tariff-related expenses fairly can be one way to push the contract forward.

Termination and Renegotiation Rights

Certain agreements could become financially unsustainable after accounting for the impacts of tariff increases. Building in termination options, such as termination for convenience, can save a party when the obligations of the contract become too costly or otherwise unfavorable.

Specific to tariffs, attorneys may also want to consider adding renegotiation provisions that trigger if tariffs exceed a certain threshold, allowing parties to revisit terms.

Supply Chain and Sourcing Provisions

Businesses relying on international suppliers may face increased costs or delays. Attorneys should reevaluate sourcing contracts to identify risks related to tariffs and import restrictions and advise clients on diversifying suppliers to reduce dependency on tariff-impacted imports.

Dispute Resolution Mechanisms

One concept rings true for all contracts: when ambiguity arises or disputes come to a head, having a clear, streamlined dispute resolution process can save the parties from needless costs, wasted time, and litigation.

Conclusion

Tariff increases affect each industry differently. However, it is a certainty that the tariffs aren’t going anywhere any time soon, and clients need to be advised of the risks and how to best shield themselves from or mitigate against such risks through their contracts. The time to implement those strategies is now.

For existing contracts that cannot be revised or modified, attorneys should be prepared to have strategic conversations with their clients regarding the tariff impact on their individual businesses. By understanding the potential pitfalls that they may be subjected to and their options under the contract, they can better mitigate their exposure. This may include reducing orders, terminating at upcoming renewal periods, using opportunities to renegotiate alternative terms, seeking change orders for alternative materials – the list goes on.

By reviewing key contractual provisions, business attorneys can help clients navigate uncertainty, protect profitability, and maintain compliance with evolving trade policies.

This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section webpages to learn more about the benefits of section membership.