Tariff-Related Cost Increases and Equitable Adjustments for Government Contractors

Government contractors facing increased costs due to newly imposed tariffs may have a path to recovery through the Federal Acquisition Regulation (FAR). When tariffs are imposed after the award of a government contract, the contractor may be entitled to an equitable adjustment to account for the increased costs. Understanding the legal framework and properly documenting cost impacts are essential to successfully pursuing an adjustment.

Basis for Equitable Adjustment

The key provision addressing tariff-related cost adjustments is FAR 52.243-1, which governs changes to fixed-price contracts. This clause allows contractors to seek equitable adjustments when the government unilaterally changes the contract terms or when circumstances outside the contractor’s control cause significant cost increases. Newly imposed tariffs often fall into this category if they affect the cost of materials or equipment necessary for contract performance.

Key points to establish to secure an equitable adjustment:

• The tariff constitutes a change and was not included in the contract price.
• The amount of the cost increase as a direct result of the tariff.
• The contractor did not anticipate the tariff in its bid or final offered price.

Documentation and Submission

As with any request for equitable adjustment, proper documentation is crucial to recovery. Contractors should maintain detailed records of:

• Cost increases attributable to the tariff.
• Efforts made to mitigate the impact, including efforts to secure impacted materials or supplies that are not impacted by the tariff.
• Correspondence with suppliers and subcontractors regarding tariff effects and pricing implications under any applicable purchase order.

Notice

Timeliness is also critical. FAR requires contractors to notify the government promptly upon identifying a cost increase and to submit a request for equitable adjustment within the specified period. Failure to do so may result in a waiver of the claim.

Strategic Considerations

Contractors should proactively communicate with contracting officers when tariffs arise to discuss potential adjustments. Consulting with legal counsel experienced in government contracts can help frame the adjustment request and ensure compliance with FAR requirements. Additionally, contractors may explore negotiation opportunities to amend contract terms, where appropriate, to mitigate tariff impacts.

Tariff-related cost increases pose significant challenges to government contractors. Pursuing an equitable adjustment under the FAR is a viable path to mitigate financial impacts, but success hinges on prompt action and comprehensive documentation. By adhering to FAR requirements and effectively communicating with contracting officers, contractors can protect their financial interests despite unforeseen tariff costs.