The year 2025 is shaping up to be quite the challenging year for the construction industry. From the President’s executive order nos. 14151 and 14174 (signed January 20 and 21, 2025, respectively) seeking to end DEI-related programs in federal contracts (including construction), to the tariffs that have been instituted on construction materials such as steel, aluminum, and lumber, uncertainty abounds for 2025.
This article will discuss how project participants can better understand, account for, and allocate the risks associated with delays or cost increases that may result from these types of government actions.
The Three Most Common Types of Delay Provisions Found in Construction Contracts
Delays or price escalations are nothing new to the construction industry. Indeed, it is commonplace for construction contracts to address how the risk of delays and added costs are to be allocated among the parties, and how any claims stemming therefrom are to be raised and resolved among the contracting parties. Generally speaking, there are three types of contractual provisions that address delays. They are: (1) excusable, compensable delays; (2) excusable, non-compensable delays; and (3) non-excusable delays.
Excusable, compensable delays are delays that are not caused by the contractor, entitling them to both an adjustment of the contract’s time to perform and price. A classic example of an excusable, compensable delay is an owner-directed design change. Excusable, non-compensable delays are delays that entitle the contractor to an extension of the contract’s time to perform, but no corresponding adjustment to the contract price. These types of delays are often addressed in the contract’s force majeure clause and are often caused by factors outside the control of any of the contracting parties. Oftentimes (but not always), government actions that disrupt or delay construction projects are categorized as an excusable, non-compensable delay. Finally, non-excusable delays are delays caused by or within the control of the contractor. Because such delays are within the contractor’s control, the contractor is not entitled to an adjustment of the time to perform or the contract price.
Strategies for Dealing with the Current Governmental and Economic Climate
One need only watch the news for a few minutes to understand the constant state of flux concerning enforcement of executive orders and tariffs. Indeed, as recently as March 14, 2025, a federal appellate court granted the government’s request to stay a nationwide preliminary injunction that blocked enforcement of certain parts of executive order nos. 14151 and 14173 – representing yet another twist in the battle to enforce (or render void) these orders. It is expected that this landscape will continue to change over the next several months, and that additional tariffs may be imposed (whether on additional materials or in differing amounts; as of the writing of this article, imported steel and aluminum are subject to a 25 percent tariff, with no exceptions for large trading partners like Mexico or Canada).
The best way to address this uncertainty is to make certain how such delays (and any corresponding cost increases)—should they occur—will be treated by the project participants. In other words, the parties need to address these issues up front in their contract. And above all else, one rule reigns supreme for crafting forward-looking contract clauses like delay and cost escalation provisions: clarity is king. If it is the project owner, and not the contractor, who will bear the increased costs of materials due to tariffs, then the contract needs to clearly place that risk on the owner (or vice versa). The same is true for delays (recall that last time tariffs were implemented, supply chain issues ensued as well): will the contract price be adjusted to account for the delays or just the time to perform? Allocating these risks upfront, using clear and unambiguous language, will ensure that these issues are handled promptly and cost-effectively, which will in turn help to keep projects on schedule (or to minimize the impact of delays). But the clarity does not begin and end with the contract – contractors and subcontractors should be clear in their bids and proposals what assumptions they rely upon (such as tariffs remaining constant at 25 percent) or what is excluded from their bid. Again, doing this will ensure that all project participants are aware of and in agreement with how the risk of government-caused delays and cost increases are allocated. In these uncertain times, clear risk allocation in contracts becomes that much more critical as it will help to reduce uncertainty.
