b'BENCHMARKSSTRATEGIES FOR CONSTRUCTION PROJECTSIMPACTED BY CANADA-U.S. TARIFFS By Scott Masson (partner, MLT Aikins) andAndrew Konopelny (associate, MLT Aikins)The ongoing trade war between the U.S.EXISTING CONTRACTS: DETERMINEContracts regularly provide relief for and Canadawho in the last severalTHE CONTRACTUAL SOURCES FORchanges in law such as additional months have implemented tariffs onTARIFF RISKcompensation and/or additional time.each others goods (with additionalMany construction companies have4.Delays and force majeure: Events measures potentially on the way)isspent the last several months reviewing likely to have a significant impact on thetheir existing contracts for tariff-relatedof force majeure often include Canadian construction industry.risks. The following is a short list of majorgovernmental action or any cause contract areas that may be relevantbeyond reasonable control. Force In addition to the potential hard costto how responsibility for tariff-relatedmajeure clauses are often narrowly impact on Canadian constructionimpacts are handled. construed and require the claiming projects where U.S.-sourced materialsparty to bear the burden of proof. The 1.Incoterms and other expressavailability of a force majeure clause are subject to additional tariffs, the significant uncertainty being introducedallocations of responsibilities forapplying to the recent tariffs will be to project supply chains poses additionaltariffs: Many contracts expresslyhighly dependent on the language challenges to the industry. allocate responsibility for tariffsof your contract. Additionally, the and/or changes to tariffs. If yourimpact of tariffs on both parties As the numerous potentialcontract adopts Incoterms, youcould potentially trigger difficult considerations may be overwhelming, itmust determine the Incoterm beingassessments of concurrent delay is important to remember the proactiveused and how the Incoterm affectsdepending on the contract and steps for any time a project faces anthe allocation of tariff risk. It is alsowhether tariff-related cost increases unexpected crisis: important to determine whetherwere caused by a prior delay event. 1.Review project-specific risk for tariff- the contract has overridden the5.Notice requirements: Contract applicable Incoterm or has other related impacts. provisions inconsistent with thenotice requirements often have 2.Discuss mitigation strategies withchosen Incoterm (which is commonstrict timelines. Contractors should in title transfer and risk of be aware of when the notice project counterparts. loss provisions). requirement is triggered in their 3.contracts. To avoid potential disputes Take steps to diversify alternate2.Contract price model: The contractover notice timing, contractors should sources of key materialsand supplies. model is a primary risk allocationcarefully consider when a tariff-tool on tariffs. While each contractrelated claim arises under4.Review your templates tois unique in its terms, cost- their contract. understand how tariff-related risk reimbursable contracts would allow6.Mitigation: Generally, all parties is addressed. increased material or labour costs due to tariffs to be flowed throughhave a duty to mitigate their losses. 5.Consider how tariffs may Contractors should review their to the owner. However, lump sum impact the solvency of your or other contract models with fixedcontracts for general and specific project counterparts. pricing components may limit tariff- mitigation obligations, as well as the 6.Plan for potential delays in sourcingrelated pricing changes to thoseconsequences of failing tocaused by a change in law or othertake action.key advisers or labour from the U.S. eligible relief event. 7.Material escalation clauses:7.Engage strategic advisers, includingTariff-related price impacts could 3.Changes in law: How the contract legal counsel, to develop a plannedpotentially trigger contractual material tariff response. defines a change in law willescalation clauses, which are often determine whether the current tarifflinked to market indices.It is essential to understand the tariff riskmeasures are sufficient to constitute that exists within for both existing anda change in law that could justify8.Termination: Due to tariffs, somefuture construction contracts. an increase in the contract price.contracts may be impractical to 22 BUILD MANITOBAwinnipegconstruction.ca'