United States (DC) - Market Insights

Anticipated trends in U.S. construction litigation in 2026: tariffs, material cost escalation, and risk allocation

Tariffs and trade policy uncertainty have re‑emerged as particularly potent drivers of U.S. construction risk and litigation. Recently announced and implemented tariffs on steel, aluminum, electrical components, and other key inputs are again creating price volatility that was not fully foreseeable at bid time. Projects priced even 12–18 months ago are increasingly encountering material cost escalation (MCE) that exceeds traditional contingencies, putting pressure on existing contractual risk allocations.

Throughout 2026, U.S. construction litigation is likely to focus on whether tariff‑related cost increases and procurement delays are compensable, excusable, or simply risks assumed by the contractor. These disputes are turning less on abstract trade policy debates and more on concrete drafting choices — many of them now emerging as de facto market standards — and on courts’ application of familiar doctrines such as change in law, force majeure, and delay causation to a new factual landscape.

Contract drafting responses to tariff-driven cost escalation

Modified AIA A102/A201 and A141 forms — emerging approaches

Standard construction industry contract forms were not drafted with today’s level of extraordinary tariff volatility in mind. The most widely adopted construction project form agreements in the United States have been published by the American Institute of Architects (AIA) since 1987. Nearly 20 years ago, a coalition of construction organizations began publishing the ConsensusDocs suite of 110 contract forms. Those standard industry forms, as well as bespoke construction agreements, require carefully negotiated modifications to allocate the current tariff fluctuation risk bedeviling the supply chain. For example, most sophisticated projects are modifying AIA A102™-2017 (Cost Plus with Guaranteed Maximum Price (GMP)) and A141™-2014 (Design‑Build) forms to address tariff and MCE risk more explicitly. A common and commercially reasonable compromise emerging in the market is a capped risk‑sharing model. Under this approach:

• The contractor agrees to absorb tariff or MCE impacts up to a defined percentage threshold (often in the range of 10–15% of affected material costs).
• Once that threshold is exceeded, the owner assumes responsibility for the excess, typically through a change order, provided the contractor has complied with notice, mitigation, and documentation requirements.

This structure reflects a recognition that while contractors can — and should — manage procurement timing and supplier negotiations, they cannot reasonably insure against sudden market‑wide trade actions.

A related model sets a defined pricing fluctuation trigger. For example, contracts may provide that if material pricing increases or decreases beyond a negotiated percentage (e.g., ±7–10%), the owner must either issue a change order reflecting the adjustment or elect to terminate the contract without penalty prior to full buyout. These provisions replace open‑ended pricing exposure with defined commercial decision points.

Risk allocation mechanics beyond headline escalation clauses

Risk allocation around tariffs increasingly goes beyond a single “material escalation” clause, instead appearing across multiple interlocking provisions.

GMP contingencies and first‑dollar usage. On GMP projects, contractors are frequently negotiating express language allowing tariff‑ or MCE‑related overruns to be paid from the contingency. Owners, in turn, are insisting on qualifying language clarifying that the contingency may only be used where escalation is not contractor‑caused; for example, where delays stem from late owner selections, design changes, or market‑wide tariff actions rather than the contractor’s failure to timely procure materials. This distinction is becoming critical in later disputes over whether contingency drawdowns were contractually permitted or evidence of mismanagement.

Timing‑based tariff definitions. Another important drafting trend is clarity around when a tariff must be enacted to justify cost relief. Owners often argue that announced tariffs should be priced into bids. Contractors are increasingly successful in limiting relief obligations to tariffs that become legally effective after the contract’s effective date — a distinction that is already surfacing in claims over bid assumptions and change order entitlement.

Allocation of savings. Sophisticated owners are also ensuring that tariff and MCE provisions are symmetrical — if escalation triggers shared cost increases, de‑escalation should likewise result in shared savings. Litigation exposure increases where contracts permit pass‑through of increases but are silent as to reductions.

Delay, escalation, and the interaction of time and money

Aggregate delay concepts and tariff-driven procurement impacts

Tariffs affect projects not only through higher material prices but also through procurement delays, supplier defaults, and re‑sourcing challenges. These impacts raise difficult questions about whether resulting delays are excusable, compensable, or inexcusable. Most U.S. construction contracts continue to treat force majeure-type events as entitling the contractor to time, but not money. Owners frequently reinforce this stance through no‑damages‑for‑delay clauses, which remain enforceable in many jurisdictions absent bad faith, active interference, or other recognized exceptions.

While it remains uncommon for contracts to require delays to exceed a defined threshold before general conditions become compensable, such aggregate‑delay concepts are beginning to enter negotiations. From an owner’s perspective, thresholds avoid immediate cost exposure for short disruptions; from a contractor’s standpoint, prolonged tariff‑driven delays — particularly when materials are unavailable at any price — undercut the fairness of time‑only relief.

At the core of these disputes is the definition of “excusable” versus “inexcusable” delay. Carefully drafted contracts increasingly distinguish between market‑wide unavoidable events, owner‑caused delays, and contractor‑caused delays. Litigation in this area tends to focus less on whether tariffs are extraordinary and more on whether the contractor took timely, reasonable steps to mitigate their effects.

Change orders tied to delay-based cost increases

A notable recent market shift — and a likely driver of future litigation — is increasing resistance by subcontractors to hold pricing during extended delays. Even where bids contain defined “good‑for” periods, tariff‑driven escalation can make performance economically untenable.

Owners continue to rely on traditional price‑hold approaches, but are also layering in more nuanced buyout obligations. Contractors, by contrast, are seeking recognition that some buyout delays stem from owner‑driven design development or late notices to proceed. These provisions are already producing disputes over what constitutes “best efforts,” an issue courts continue to analyze on a fact‑specific basis.

Litigation trends: tariff-related disputes in U.S. courts

Tariff‑related construction disputes in U.S. state and federal courts are not emerging as a new doctrinal category. Instead, they reflect courts’ application of established contract principles — risk allocation, foreseeability, notice, mitigation, and causation — to a volatile pricing environment. Recent cases arising from pandemic disruptions and federal trade actions provide meaningful guidance for how courts are likely to evaluate construction claims tied to tariffs.

Market disruption is not enough

Although not a construction case, JN Contemporary Art LLC v. Phillips Auctioneers LLC, 507 F. Supp. 3d 490 (S.D.N.Y. 2020) is frequently cited in construction disputes for its treatment of force majeure and market disruption. There, the court rejected an effort to excuse contractual performance based on generalized economic turmoil stemming from COVID‑19, emphasizing that force majeure clauses are construed narrowly and according to their precise language.

Similarly, in Sixela Inv. Grp. v. Hope Fed. Credit Union, 2025 WL 1534858 (W.D. Louisiana 2025), the plaintiff developer filed suit against a credit union for, among other things, increased construction costs resulting from tariffs due to the credit union’s failure to approve a loan to build a grocery store. Ruling on a motion for summary judgment, the court held that the developer was not entitled to recover such increased costs. The developer had asserted that its “construction damages will be proven at trial utilizing the difference in the bid presented and the current economic situation with highly increased tariffs compared to the time applying for the loan.” The court rejected this argument on the basis that the developer failed to present any evidence of such increased costs (including increases and labor and material due to tariffs), finding that the developer’s claims were based on “purely on conjecture and speculation.”

Courts are unlikely to excuse performance or award cost relief based solely on broad assertions of trade instability or market chaos. Instead, contractors must tie tariff impacts to contractual provisions that specifically allocate risk for changes in law or government action — and must demonstrate compliance with notice and mitigation obligations. Tariffs, standing alone, do not justify relief absent supporting contract language coupled with clear proof of damages and increased costs.

Change in law versus commercial impracticability

In Rembrandt Enterprises, Inc. v. Dahmes Stainless, Inc., 2017 WL 3929308 (N.D. Iowa 2017), the court addressed whether dramatic market changes rendered performance commercially impracticable. While the case did not involve tariffs directly, it underscored courts’ skepticism toward arguments that performance has become too expensive, as opposed to truly impracticable.

When applied to construction, courts are drawing sharper distinctions between cost increases caused by foreseeable market volatility and those attributable to discrete governmental actions that alter the legal landscape. Tariff‑related claims framed as compensable “changes in law” are gaining more traction than those framed as force majeure or impracticability defenses. Contractors asserting tariff‑based adjustments must show not just cost impact, but a direct nexus between a specific tariff enactment and the claimed increase or delay.

Delay damages and causation

Across recent decisions, courts evaluating tariff‑related delay claims are demanding increasingly rigorous proof of causation. General references to “supply chain issues” or “tariff impacts” are no longer sufficient. Successful claims will need to tie specific tariff actions to critical‑path delays through contemporaneous schedule analysis and procurement records.

Conclusion: litigation risk follows drafting discipline

As tariff policy remains fluid and politically driven, construction stakeholders should anticipate continued volatility — and related litigation — through 2026. In an era of renewed trade uncertainty, courts will focus on what the parties actually wrote — not what they wish they had negotiated. Thoughtful risk allocation on the front end will continue to be an effective tool for construction stakeholders to best allocate risk in the face of wildly undisciplined tariff announcements.