In recent years, tariffs have been imposed on an array of goods, ranging from electronics to solar panels to industrial equipment. For companies bidding on contracts now, the tariffs may not be a concern, as the tariffs can be factored into the pricing proposal. However, for government contractors performing contracts that were awarded before the tariffs were imposed, the tariffs may result in increased and unanticipated costs. Those increased costs may provide the basis for a request for equitable adjustment (“REA”) or a claim under the Contract Disputes Act (“CDA”).
The ability to recover tariff-related costs depends on the terms of the contract. Federal Acquisition Regulation (“FAR”) 52.229-3 Federal, State, and Local Taxes, provides the most straightforward mechanism to recover tariffs imposed after contract award. That FAR provision provides: “The contract price shall be increased by the amount of any after-imposed Federal tax, provided the Contractor warrants in writing that no amount for such newly imposed Federal excise tax or duty or rate increase was included in the contract price, as a contingency reserve or otherwise.” 48 C.F.R. 52.229-3(c). If FAR 52.229-3 is in your contract, and you have been impacted by a tariff that was implemented after award, you may be entitled to an adjustment to account for the increased costs.
If FAR 52.229-3 was not included in your contract, you may have other options. For example, an economic price adjustment clause, such as FAR 52.216-4, Economic Price Adjustment-Labor and Material, calls for the contracting officer to negotiate a price adjustment after receiving notice of a price change. Increased prices that occur as a result of a tariff arguably fall within the scope of an economic price adjustment provision. Contractors should be mindful that this provision requires the contractor to provide notice within 60 days of an increase. And, the aggregate of increases is usually limited to 10% of the original unit price. If a tariff is causing trouble and the contract includes an economic price adjustment clause, there may be a basis for an REA or claim.
Michelle Litteken, the author of this blog, is Counsel in the Firm’s Government Contracts Claims and Appeals, Government Contracts, False Claims Act, and Litigation & Dispute Resolution practice groups.