Rising Construction Costs in 2025: Tariffs, GMP, and Fixed-Price Contracts

Tariffs are a top concern in 2025, with postponements on imports that have been looming on the U.S. construction industry for the past month. A planned 25% import tariff is positioned to affect construction materials from Canada, Mexico, China, and soon several other countries., Economists fear the financial impact of the tariffs, amid other executive orders, on increasing costs for Americans, including for major construction projects.

Luckily, debate about the impending tariffs goes back farther than just the beginning of the year, so the construction industry has been proactive in considering the effects of these added costs on their prices.

What does this mean for construction law?

Contractors and construction companies that bought up materials at the beginning of the year ahead of tariffs have at least some leeway with the price of goods and project timing. Those that did not now face an increased cost of 1.4% on input prices that do not include the tariffs that, as of March 10, 2025, have yet to be implemented. Contractors that are still negotiating contracts will need to consider the financial impact that tariffs will have on material prices and project timeline. For those that have existing contracts or are in the middle of a project, the outlook is more grave.

Two types of contracts may have a severe financial impact on the contractor:

• Guaranteed Maximum Price (GMP): an agreed-upon amount that sets the highest possible reimbursement on material, labor, and fee costs by the client. This allows wiggle room to find cheaper materials.
• Fixed-price contracts: an agreed-upon price that remains the same from negotiation to project completion.

For contracts negotiated prior to the Trump Administration’s tariff announcement, the additional cost for materials may have a negative financial impact on the contractors. With GMP and fixed-priced contracts, contractors may lose money if they did not proactively negotiate for the impending tariffs on construction materials such as cement, lumber, steel, and aluminum. Addendums on these contracts may be referenced as “material price escalation” clauses rather than mentioning “tariffs.” Most construction contracts have such terminology built in following the COVID-19 pandemic supply chain demand.

As tariffs are uncertain, what is certain is that the contracts for construction projects must have clauses and amendments that consider the economic influences on material cost, whether it’s imposing tariffs, environmental causes, a pandemic, etc. We cannot plan for these events, but we can plan for what we do if they happen.

For more information on construction contracts, please do not hesitate to reach out to me at sjreed@norris-law.com.

About the Author- Biz Law Blog

Steven J. Reed focuses his practice on business transactions, commercial real estate and finance, and commercial litigation. With extensive experience in New Jersey and New York, he advises businesses at various stages of growth, drafts contracts for domestic and international clients, and represents institutions in higher education. His franchise work includes representing a real estate broker franchisee in Ireland and a hotel franchise operator in Africa. Steven has also developed company-wide contract templates for corporations and negotiated construction agreements for major developers. A dedicated advocate, he provides pro bono representation for domestic violence victims and remains active in professional legal organizations.