Price volatility has always been part of construction, but the current trade environment has made the allocation of that risk particularly difficult to ignore. Tariffs, changing trade measures, material shortages and supplier pricing can all affect the cost of performing work long after a contractor has submitted its bid.
Canada’s tariff environment is a good example. On September 8, 2026, new Canadian counter-tariffs of 15, 25 and 50 per cent took effect on targeted U.S. products, including products in the steel sector. Canada also maintains separate measures affecting steel and aluminum imports, including tariff-rate quotas and tariffs on certain steel derivative products.
For contractors with projects already under contract, changes like these can create significant cost increases that may not have been contemplated when the original price was established. When that happens, the immediate commercial question is usually who is responsible for the additional cost.
The legal answer will depend on what the parties agreed to.
What does the contract actually say?
A stipulated-price contract provides an owner with a significant degree of price certainty, and a contractor entering into that arrangement generally assumes meaningful pricing risk. That does not necessarily mean every cost increase arising during the project will automatically be borne by the contractor.
The contract may contain provisions dealing with price escalation, tariffs and duties, changes in law, force majeure, changes to the work or other circumstances that can affect price or schedule. Bid qualifications and pricing assumptions may also be relevant where they ultimately form part of the contractual agreement.
The analysis therefore goes beyond whether a cost increase was unexpected or outside a contractor’s control. The question is whether the parties’ agreement provides a mechanism that applies to the particular event and, if so, what is required to rely on it.
Timing can be particularly important when tariffs are involved. A tariff that existed when a contractor submitted its bid presents a different issue from one imposed after bid closing or after the contract was executed. Procurement timing can add another layer. Depending on the contractual language, determining when the relevant measure was announced, when it became effective and when the affected material was purchased may all be relevant to understanding how the risk was allocated.
The current Canadian tariff regime illustrates why those details matter. Different measures can apply depending on the product, country of origin and other circumstances, and the federal government has continued to modify and extend parts of the steel and aluminum tariff framework. In June 2026, for example, the government announced that key steel tariff-rate quotas and certain tariff-relief measures would be extended into 2027.
A general statement that tariffs increased the cost of a project may therefore identify the commercial problem, but it does not necessarily answer the contractual one.
Managing price risk before the contract is signed
Tariffs are one example of a much broader issue. Construction contracts routinely allocate risks that cannot be eliminated, including changes in material costs, labour conditions, supply-chain disruptions and regulatory requirements.
Where price volatility is a known concern during procurement, it is worth dealing with expressly rather than assuming the parties will be able to resolve it if circumstances change.
An escalation clause is one possible approach. Depending on how it is drafted, it can identify the materials or costs subject to adjustment, establish a baseline price or index, define the circumstances that trigger an adjustment and determine how increases and decreases will be calculated.
This is not an unusual concern within the Canadian construction industry. The Canadian Construction Association’s current policy on firm-price quotations supports making an escalation-adjustment clause available as an option where an owner requests fixed-price bids, together with a corresponding de-escalation mechanism.
Other contractual approaches may be appropriate depending on the project. Parties can address responsibility for newly imposed tariffs, identify particular pricing assumptions, use allowances for volatile inputs, or establish how certain changes in law will be treated. Where a contractor has qualified its bid based on a particular assumption, care should also be taken to ensure that the qualification actually forms part of the final contractual agreement if the contractor intends to rely on it.
None of these approaches guarantees that costs will remain stable. Their purpose is to establish, as clearly as possible, what the parties have agreed will happen if they do not.
That distinction matters. If everyone knows during procurement that the price of a critical material is unusually volatile, leaving the contract silent does not remove the uncertainty. It leaves the parties to determine who bears the consequences after the cost has already changed.
Notice and documentation still matter
Even where a contract may provide a basis for additional compensation, entitlement is only part of the analysis. The contractor must also consider what the contract requires it to do when the relevant event occurs.
Construction contracts frequently contain notice provisions dealing with events that may affect price or schedule. Those provisions may establish when notice must be provided, what information it must contain and what steps follow after notice is given.
This is where a commercial issue can become a contract-administration issue.
If a supplier advises that the cost of a material has increased because of a newly imposed tariff, the project team should be considering the contractual implications at that point. The applicable contract provisions should be reviewed, any notice requirements identified and the relevant records preserved. Depending on the circumstances, those records could include supplier quotations, purchase orders, correspondence, procurement dates, tariff classifications and information demonstrating how the additional cost was calculated.
Waiting until the increased cost appears on an invoice months later can make the issue more difficult to address. By then, contractual notice periods may have passed, procurement decisions may already have been made and the contemporaneous information needed to explain the cost increase may be harder to reconstruct.
Good contract administration is therefore part of managing price risk. The wording negotiated at the beginning of the project only helps if the project team understands and follows it while the work is underway.
Price certainty and fair risk allocation are not necessarily the same thing
Owners understandably want price certainty, particularly when budgets and financing depend on knowing what a project will cost. Contractors also need to know which risks they are expected to price and which risks may result in an adjustment to the contract price.
Those objectives do not have to be incompatible.
Allocating every possible pricing risk to a contractor may create the appearance of certainty, but that risk still has a cost. Contractors may respond through contingencies, qualifications or higher pricing, and some may decide not to pursue work where the risk cannot reasonably be assessed. If an extraordinary event eventually occurs, unclear or unrealistic risk allocation can also become the starting point for a dispute.
At the other end of the spectrum, a clause that simply transfers every cost increase to the owner does little to provide the price certainty the owner was seeking in the first place.
Effective risk allocation requires more judgment than either approach. The parties should consider who is best positioned to understand, price, manage or absorb a particular risk and then ensure that the contract reflects that commercial decision.
That conversation is particularly relevant in the current environment. Canada’s trade measures affecting steel and aluminum have changed repeatedly, and the federal government continues to adjust tariffs, quotas, exemptions and relief measures in response to changing international trade conditions.
Construction contracts cannot anticipate every economic or regulatory change that may occur over the life of a project. They can, however, provide a framework for dealing with those changes when they occur.
For owners and contractors, that means looking beyond the number at the bottom of the bid and understanding the assumptions and risk allocation behind it. When market conditions are uncertain, the time spent addressing those issues before the contract is signed can be considerably more valuable than trying to resolve them after the price has already changed.
This publication has been prepared for general information only and does not constitute legal advice or create a solicitor-client relationship. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal or other professional advice based on their particular circumstances. LEGALLY BUILT accepts no responsibility for any loss or damage that may arise from reliance on the information contained in this publication.