The California fires and the tariffs imposed by the Trump Administration, both occurring in the first quarter of 2025, will have profound impacts on the construction industry. How can you brace for the coming storm of highly variable costs for labor and materials?

As Hurricane Katrina and the COVID-19 pandemic taught us, natural disasters can cause immense disruptions to the construction supply chains. In 2005, Katrina caused significant disruptions in the supply of petroleum-based products, drywall, and other construction materials. And, during the COVID-19 pandemic, a reduced work force and supply chain disruptions wreaked havoc on schedule, the supply of almost every building material, and ultimately, many companies’ bottom lines.

The immense scale of destruction wrought by the California wildfires will almost certainly mean that some resources from other parts of the country, including Texas, will be redirected to Los Angeles. The newly imposed tariffs from the Trump Administration, even if only temporary, will increase the cost of steel and other materials used in the construction industry. The Executive Orders issued by the Administration will also likely exacerbate the already significant shortage of workers available to the construction industry.

While several court-created doctrines, such as impossibility of performance, were re-tested during the COVID-19 pandemic, those doctrines may not find easy application to the current set of issues. Texas has long respected parties’ right to contract and absent Legislative actions to limit abuses, held that right inviolate. Cases arising from the 1973 Oil Embargo are reflective of that right, with Texas and other States’ courts ruling that lump-sum or fixed price contracts, without certain savings clauses, shift the risk of price increases or delivery to the contractor/delivering party.

How can you protect yourself and your business from the variabilities that are already on the horizon? One contractual clause that saw some, though not universal, use during the COVID-19 era was a price escalation provision. If phrased correctly, such a clause would allow you to pass-on increases to your contract price even if you entered into a lump sum or fixed price contract. Below is a sample clause we have incorporated into several of our clients’ contracts.

Escalation of Contract Sum: Product or Material Cost Increase. Notwithstanding any other provision of the Contract or the Contract Documents, if the quoted price of any materials, products, or equipment associated with the Work increases by X% or more, regardless of any cause, including but not limited to material price increases associated with any act of God, industry wide supply chain disruptions, pandemics, weather, increased export taxes, tariffs, or any related shipping disturbance, Contractor shall be entitled to an increase in the Contract Sum to cover those price escalations.

Because supply chain disruptions are not limited to price escalations, but also create material shortages and schedule delays, other clauses in your contracts—upstream and downstream—are worth reexamining. For instance, narrowly focused force majeure clauses, no-damages-for-delay clauses, and liquidated damage clauses may warrant redrafting to accommodate for the current economic realities.

The attorneys in our Austin and Dallas office frequently prepare and negotiate design and construction contracts, including ones with price escalation and force majeure clauses. If you should have any questions about the contract forms you are using or are being asked to sign, please contact us at info@gstexlaw.com.

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