20 Cornerstone Summer 2025 agchouston.org For example, the energy sector’s petro- chemical plant expansions rely heavily on steel and specialized imported compo- nents, while downtown and Galleria-area commercial developments depend on steel, aluminum, glass and high-end finishes often sourced globally. Meanwhile, the booming residential market, while benefiting from tariff-free Canadian lumber, still faces cost pres- sures from imported appliances, fixtures and, potentially, aluminum products. Strategic Solutions to Maintain Profitability While there are clear obstacles that must be overcome and a multitude of risks to mitigate, there’s good news for Houston’s resilient and resourceful con- tractors, as the keys to surviving such a formidable set of challenges are fairly straightforward: rapid adaptation and strategic planning. 1. Supply Chain Diversification Unfortunately, it’s no longer viable to rely on a single source for critical materials. Instead, it’s recommended that Hous- ton-area contractors actively cultivate new supplier relationships and develop a broader network of suppliers, including domestic manufacturers in addition to Canadian and Mexican partners. Additionally, exploring alternative international suppliers and sources that aren’t subject to the highest tariff rates — as well as staying informed about supplier capacity, lead times and geopolitical stability — is essential to maintaining operations. “Based on current conditions, we recommend contractors evaluate their draw schedules to anticipate ordering more materials up front,” stated Harrod. “We recommend locking in pricing early and storing materials off-site to control costs and schedule.” By building stronger, more collabo- rative relationships with key suppliers or creating multi-supplier redundancy plans for critical materials, contractors can leverage better pricing, priority access and heed early warnings of potential disruptions. 2. Defensive Contractual Safeguards It’s important to think strategically and defensively when future-planning during contract negotiations. Given the impact of the new tariff structure, incorporating well-defined material price escalation clauses that trigger adjustments based on specific, verifiable cost indices is essential to maintaining operational profitability. Likewise, negotiating clear terms regarding responsibility for tariff-related cost increases and delays is paramount for Houston’s contractors. Contractors should review their gen- eral conditions and evaluate the need for change orders and amendments to address completion times and pricing. “Unforeseeable government regulations and executive orders identifying federal emergencies and international threats may qualify as force majeure events,” Harrod points out. “Additionally, change order terms may allow for time and price increases based on supply chain issues and other impacts. Finally, we recom- mend contractors negotiate contingency clauses and/or price escalation clauses to address the impact tariffs and supply chain issues may have on a project.” The contractual safeguards don’t just end with the primary client agreements, however. Consistent “flow-down” provi- sions ensuring subcontractors are bound by similar terms are critical to avoid disputes, too. A memo prepared by Howard Roth of construction law firm Smith Currie Oles LLP and sent out by the Associated General Contractors of America further reiterated the importance of being proac- tive and prepared, especially for federal and federal-aid contractors: “The federal government procures most construction contracts on a fixed-price basis. To protect themselves, contractors must eval- uate the terms of their contracts to determine whether they contain Federal Acquisition Regulation (FAR) clauses that will allow them to recover. If the tariffs lead to shortages, contractors may also need to seek appropriate schedule relief under the FAR. Contractors must pay special attention to the timelines and notice requirements associated with such clauses. Contractors should consider the price and performance risks posed by the possibility of tariffs and structure upcoming bids and subcontracts accordingly.” 3. Value Engineering and Material Substitution By actively collaborating with architects, engineers and clients early in the design phase, contractors can more readily iden- tify potential opportunities to substitute materials heavily impacted by tariffs with viable, cost-effective, domestically avail- able alternatives. “We recommend owners participate in preconstruction planning — partnering with the design, construction and financ- ing teams — to allow for alignment on terms and solutions that facilitate the timeline and budget for the project,” said Harrod. By involving construction teams at an early design stage, contractors can gain valuable input on lead times and availability of materials. These material selections can then be factored into the overall design and financing, including for post-construction maintenance over the lifespan of the project. “With available technology and mod- eling, owners can evaluate development pricing for pre-construction, construc- tion and post-construction costs. These strategies can provide design flexibility, which can enable the project to adjust to changing regulations and pricing,” Harrod explained. Although materials substitution may involve specifying domestically produced steel grades, exploring different clad- ding systems, using alternative finishing materials or engineered wood products, relying on locally assembled components The keys to surviving are straightforward: rapid adaptation and strategic planning.
