RC119 JulyAugust 2025 - Magazine - Page 31
headquarters in the U.S. and have fewer than 250 full-time
employees in Canada) from participating in government
procurement opportunities in Ontario.
The ongoing tari昀昀 battles should come as no surprise
to those in the construction industry. During President
Trump’s 昀椀rst term, the U.S. imposed 25 per cent tari昀昀s
on steel and 10 per cent on aluminum products imported
from Canada, citing national security concerns—the very
same justi昀椀cation used again in 2025. In response, Canada
imposed a reciprocal tari昀昀 on U.S. steel and aluminum
products to take e昀昀ect on July 1, 2018 which remained in
place until May 20, 2019.
Common legal issues and project planning
Common project issues likely to arise from the tari昀昀s will
include claims for more money, or a schedule extension.
Typically, these types of claims will also trigger a discussion
regarding one or more of the following contract clauses or
legal principles:
CHANGE-IN-LAW: A common contract clause that is designed
to address cost increases due to Tari昀昀s or other similar
legislative impacts is a ‘change-in-law’ provision. Although
the wording of these clauses varies signi昀椀cantly from contract to contract, they generally entitle the claimant to relief where there
is a change in the applicable laws of Canada
or a Province after the e昀昀ective date of the
contract. However, with the threat of tari昀昀s by
the U.S. and Canada looming for some time,
it may be di昀케cult for a claimant to support a
change-in-law claim if they knew, or should
have reasonably anticipated these tari昀昀s
before signing the contract.
TAXES: Contractual tax provisions may also allocate
responsibility for cost increases arising from tari昀昀s. For
example, the CCDC 2 – Stipulated Price Contract generally
categorizes taxes as either: a) Value Added Taxes (VAT),
which generally con昀椀rms that GST is excluded from the
contract price; or b) taxes and duties in e昀昀ect at the time
of bid closing, except VAT, which are incorporated into
the contract price. Importantly, Section 10.1.2 of the CCDC
2 provides that “[a]ny increase or decrease in costs to the
Contractor due to changes in taxes and duties after the time
of the bid closing shall increase or decrease the Contract
Price accordingly.”
FRUSTRATION: A contract may be considered “frustrated”
if an event makes it impossible for a party to ful昀椀ll its
obligations. While a change in law could lead to a valid
frustration claim, the impact must undermine the very
foundation of the agreement, not simply create challenges
or disruptions. In particular, a party claiming frustration
must typically prove:
A. A supervening event that occurred through no fault of
either party;
B. The supervening event must not have been reasonably
foreseeable when the contract was signed;
C. The supervening event must directly or indirectly impact
a material element of the contract; and
D. The supervening event must alter the nature of the
obligation so as to make it radically di昀昀erent.
Similar to the discussion above regarding a change-in-
law claim, parties will have to consider whether any tari昀昀
related delays should have been reasonably contemplated
when they signed the contract. If so, they may not be able
to claim that there was a frustration of contract. Again,
President Trump imposing tari昀昀s on steel and aluminum
products from Canada during his 昀椀rst term in 2018 and
Canada imposing its own surtax in response, is strikingly
similar to current trade events. Accordingly, it is unlikely that
a valid claim of frustration could be advanced. However, to
the extent a trade war intensi昀椀es, this may change.
FORCE MAJEURE: Another potential, but less likely, contract claim
arising from the tari昀昀s is through a force majeure clause.
Generally speaking, force majeure clauses provide relief
where a party is prevented from performing its contract
obligations due to an unforeseeable event (for example,
due to a natural disaster). As a creation of contract, only a
carefully worded force majeure clause will provide relief in
the event of a dispute. However, case law suggests that an
increased 昀椀nancial burden caused by tari昀昀s is unlikely to
excuse contractual obligations. Accordingly, although a force
majeure clause could potentially be triggered by the tari昀昀s,
the vast majority are unlikely to provide any relief.
What was once one of the world’s strongest trade relationships is
becoming increasingly strained with growing protectionist policies
driving nationalist narratives and disrupting existing trade agreements.
RENEWCANADA.NET
Recommendations
Although construction industry players have no control
over the tari昀昀s, owners and contractors should consider the
following factors in order to mitigate their potential impacts:
1. For ongoing contracts, parties should carefully review and
understand any change-in-law, tax, force majeure and change
order provisions to ensure they understand and carefully
adhere to all applicable provisions. Particular attention
should be paid to any notice requirements related to a
potential claim for cost increases or schedule relief as a failure
to comply with these requirements can be used to defeat an
otherwise valid claim.
2. Absent a clear contractual right to seek additional
compensation or a schedule extension, a claimant may
consider the merits of a common law claim for frustration.
However, as noted above, this will be a very high bar to
meet.
3. For parties negotiating a contract with knowledge of
actual or potential tari昀昀s, it will be important to speci昀椀cally
address potential cost increases and other project impacts in
the contract. Otherwise, a claimant may be deemed to have
accepted this risk.
Properly allocating risk through careful contract drafting
provisions will help manage expectations and ensure that
performance proceeds as agreed, regardless of unforeseen
circumstances. Ambiguity in contracts, however, leads to a
multiplicity of issues, leaving parties uncertain when tari昀昀
impacts occur.
JULY/AUGUST 2025 – RENEW CANADA 31
