Trump’s Steel Tariffs Jolt Construction Industry
The economy seems to be humming along, and for developers, business is booming. I can look out my office window and see cranes littering the skyline. But when President Donald Trump announced he would institute tariffs on imported steel, steel prices surged. As a result, larger builders and contractors are buying up the steel on the market, leaving little to no place for smaller contractors to get the material at affordable prices. Steel prices continued to tick up even after Trump signed the executive order, and while some sectors of the economy welcomed the tariffs, the announcement could not come at a worse time for those in the construction industry, especially those already bound by contracts,
For some contractors, the rise in steel prices placesthem in a dubious position—take a significant loss on an ongoing project or breach their contracts. In those cases, contractors should be looking to the force majeure clauses of their contracts to determine whether they can argue that President Trump’s whims and tweets regarding tariffs on steel is captured by the agreement. If so, contractors can leverage that position to request more time to obtain the materials they need or to identify substitute materials where possible, in lieu of lost profits or breaching their contracts.
What are Force Majeure Clauses?
“Force majeure”is a term that describes a particular type of event, which may excuse performance under a contract. A force majeure clause is generally defined as a “contractual provision allocating the risk if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled.” The purpose of a force majeure clause is to excuse a party’s non-performance when the non-performance is caused by circumstances beyond the party’s reasonable control, or when non-performance is caused by an event which is unforeseeable at the time the parties entered the contract.
Courts interpret a force majeure clause based on the plain, ordinary, and generally accepted meaning of the clause’s language while common law rules fill in gaps left by the document.. To determine whether a certain event excuses performance, a court looks to the language the parties specifically bargained for in the contract to determine their intent, rather than resorting to any traditional definition of the term. “In other words, when the parties have themselves defined the contours of force majeure in their agreement, those contours dictate the application, effect, and scope of force majeure.” A typical force majeure clause reads as follows:
Each party to this Contract shall be excused from complying with the terms of this Contract, except for the payment of monies when due, if and for so long as such compliance is hindered or prevented by riots, strikes, wars (declared or undeclared), insurrection, rebellions, terrorist acts, civil disturbances, dispositions or order of governmental authority, whether such authority be actual or assumed, acts of God (except however adverse sea or weather conditions other than hurricanes), inability to obtain equipment, supplies or fuel, or by any act or cause (other than financial distress or inability to pay debts when due) which is reasonably beyond the control of such party, such cause being herein sometimes called “Force Majeure.”
Are You Excused Because of Trump’s Whims on Steel Tariffs?
The operative language of the above clause, for purposes of Trump’s announcement of tariffs, is “[e]ach party to this Contract shall be excused from complying with the terms of this Contract…if…compliance is hindered or prevented by…[the] inability to obtain equipment, supplies or fuel, or by an act or cause…which is reasonably beyond the control of such party.” Arguably, Trump’s announcement of tariffs on steel created such a surge in prices and a run on the market that some contractors are simply left with no reasonable means to obtain the steel they need to timely complete their projects. In those cases, contractors may have no option but to resort to the force majeure clauses in their contracts to leverage additional time to complete their projects or stave off litigation.
Another Defense – Doctrine of Commercial Impracticability
The doctrine of commercial impracticabilityoffers another potential legal defense for contractors reeling from Trump’s announcement. The doctrine provides:
Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.
In Texas, if the parties have not allocated the risk associated with the underlying assumption on which the contract was based, the doctrine may be applicable. The Texas Supreme Court has recognized that a governmental regulation or order that makes the performance of a duty impossible “is an event the non-occurrence of which was made a basic assumption on which the contract was made.” Centex Corporation v. John Dalton, 840 S.W.2d 952, 954 (Tex. 1992).
In this case, Trump’s tariffs on imported steel is a governmental regulation that affects the market for the product. A contractor could argue that the assumption of the underlying contract was that steel would be available at market prices on the day the parties entered into the contract. In fact, a contractor could point to its bid documents to support its assumption when it entered the contract. With steel prices steadily rising because of the dwindling market, arguably, for some contractors, the change in the economic conditions could make their contractual obligations problematic. In those cases, the doctrine of commercial impracticability could excuse the contractor’s performance.
Here, here, and hereare additional articles outlining the impact of Trump’s steel tariffs on the construction industry. If you want to discuss this issue further, please contact Keron Wright at email@example.com.