RC117 MarApr 2025 - Magazine - Page 10
2025 OUTLOOK
LEADERSHIP
foreign supplier of steel and aluminum to the United States. Moreover, the trade of machinery and equipment such as cranes, excavators, and loaders, which are pivotal to any infrastructure project, is
very substantial.
Labour, equipment, and materials are the driving elements to the
success of any construction project, and the application of tari昀昀s on
these basic construction commodities could result in signi昀椀cant repercussions for the construction industry on both sides of the border. It
is anticipated that residential, commercial, and infrastructure projects will likely be impacted in both the short and long terms in key
regions across Canada, speci昀椀cally Ontario, British Columbia, and
Quebec, and in the United States, including New York and California.
Potential impacts on construction
With a long trade history and extensive reliance on cross-border
trade, the imposition of tari昀昀s poses a signi昀椀cant risk to the construction industry. The tari昀昀s may have short- and long-term impacts on
not only ongoing projects but also projects that are in their infancy,
such as those in the early stages of approvals, regulatory compliance,
planning, and feasibility studies. In general, the application of tari昀昀s
poses a sentiment of general uncertainty within the construction
industry, particularly related to planning, budgeting, and executing
any project, and may result in project cancellations and strained client
relationships.
CHANGES – With increased costs, disruptions, and potential delays as the
immediate and direct risks posed by the tari昀昀s, project stakeholders
may devise alternative strategies and supply chain solutions that
necessitate a change in scope, design, or speci昀椀cations. According to
HKA’s CRUX Insight report, which draws 昀椀ndings from more than
2,000 projects globally, change in scope was the single biggest contributor to claims and disputes for 36.9 per cent of the total projects
assessed globally. Speci昀椀cally, HKA’s research reviewed 662 projects
in 20 countries in the Americas with an average capital expenditure
(CapEx) value of $638 million, revealing that change in scope was the
single biggest contributor among causes of claims and disputes for
26.7 per cent of total projects assessed in this region. Additionally, the
CRUX data revealed that 42.7 per cent of the projects in the Americas
were a昀昀ected by design challenges. It is, therefore, imminent that
the stated application of tari昀昀s will cause a major disruption to the
region’s construction sector and will be a signi昀椀cant contributor to
claims and disputes.
PROJECT DELAYS – Higher costs and potential supply chain disruptions
due to tari昀昀s may lead to delays in receiving materials, which in
turn may delay project completion. According to CRUX, about 12.2
per cent of the projects in the Americas were impacted by delayed
deliveries of materials and products. In the likely event of a tari昀昀
application, the supply of materials and equipment for ongoing projects will be severely impacted and may delay project completion and
handover.
Parties may devise alternative procurement strategies to circumvent project delays; however, this solution may come at increased
costs. Sourcing for alternatives and the required approvals may
contribute to the delays. In fact, CRUX data revealed that delayed
approvals were the second largest contributor to claims and disputes
in the Americas. In the event delays due to the application of tari昀昀s
are realized, the ripple e昀昀ects may result in further disputes related to
liquidated damages and other consequential damages sought by the
aggrieved parties.
INCREASED COSTS – An immediate consequence of a trade dispute would
be the rise in construction material costs and price volatility because
tari昀昀s can lead to unpredictable material costs, complicating budget-
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RENEW CANADA – MARCH/APRIL 2025
ing and project planning. As discussed, both nations are key suppliers
of essential raw materials and 昀椀nished goods for construction. In addition to the basic construction commodities, energy products notably
made up one-third of Canada’s exports to the United States in 2022.
An increase in tari昀昀s on energy products will indirectly act as a major
disrupting factor, driving up material and operation costs, impacting
the supply chain, and raising overall construction expenses. Projects budgeted before tari昀昀s were imposed may encounter 昀椀nancial
di昀케culties and result in contractors and project owners renegotiating
contracts to accommodate the unforeseen cost increases.
It is prudent to note that existing contracts may not have provisions
for cost adjustments due to tari昀昀s, which may lead to disputes and
the need for legal adjustments to accommodate the new costs. This
uncertainty is likely to increase claims as contracting parties would
not have reasonably contemplated the additional costs of tari昀昀s and
would want to recover their costs through claims and dispute resolution mechanisms.
MANPOWER DISRUPTION – It is reported that about 1.4 million American jobs
are tied to Canadian exports, and about 2.3 million Canadian jobs are
tied to U.S. exports. Tari昀昀s application may create manpower disruption and pose a risk of unemployment crisis in the construction sector
through a combination of disrupted supply chain, increased costs,
labour mobility challenges and shifts in workforce dynamics. CRUX
assessed the direct contribution made to claims and disputes by both
shortcomings of project teams and skilled and nonskilled workers. Out
of 662 projects assessed in the Americas, it was revealed that 51.5 per
cent of projects were a昀昀ected by manpower and skills issues.
Preparing for potential tariffs: Practical strategies for construction
stakeholders
Navigating the challenges posed by potential tari昀昀s requires a
proactive and multifaceted approach. To mitigate risks and prepare
e昀昀ectively, stakeholders in the construction industry must focus on
comprehensive risk management strategies.
MANAGING RISKS AND REVIEWING CONTRACTS – A key step is to conduct a thorough review of all contracts. Businesses should work closely with legal counsel to identify noti昀椀cation provisions and assess whether they
can recover additional costs stemming from tari昀昀s. Contracts for projects at various stages—bidding, newly initiated, or ongoing—should
be examined to ensure a clear understanding of risk allocation. Expert
advice is essential in determining whether tari昀昀-related cost increases
can be passed on to clients or absorbed within project budgets.
ADJUST BID PRICING – Businesses should include a contingency for
tari昀昀-related cost increases for projects in the bidding stage and will
likely bene昀椀t from clearly explaining this adjustment to clients as part
of the proposal. Bidders should also explicitly state that any unforeseen tari昀昀 impacts beyond the contingency are excluded from their
risk and reserve the right to adjust pricing.
REASSESSMENT OF PROJECT SCHEDULES – All involved parties should evaluate
project timelines to anticipate delays caused by supply chain disruptions and adjust schedules to allow for potential material procurement challenges.
TRACKING COSTS AND ESTABLISHING BASELINES – Before tari昀昀s take e昀昀ect,
businesses need to establish a detailed baseline of material costs. This
allows them to track cost impacts accurately and support data-driven claims for cost recovery. The lessons learned from managing
COVID-19-related claims highlight the importance of maintaining
clear records and robust tracking systems to substantiate cost increases. By continuously monitoring market trends and material price
昀氀uctuations, businesses can strengthen their position in negotiations
and make well-informed decisions to mitigate 昀椀nancial risks.
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