In a detailed interview with Tom Temin of the Federal News Network, procurement attorney Dan Ramish from Haynes Boone provided a nuanced discussion on how tariffs, particularly under the Trump administration, interplay with federal acquisition rules and practices. The conversation revolved around the challenges and mechanisms available to federal contractors when tariffs affect costs, particularly in fixed-price contracts.

Ramish explained the applicability of the Buy American Act and the Trade Agreements Act, which govern federal procurement processes. While the Buy American Act mandates the use of domestically sourced components in many federal contracts, the Trade Agreements Act introduces exceptions for foreign supplies, provided they meet certain transformation or manufacturing criteria. Tariffs, however, can disrupt this balance by increasing the cost of materials, whether foreign or domestic. Notably, domestic suppliers have, in some cases, raised their prices in response to tariffs on foreign competitors, as seen during the imposition of aluminum and steel tariffs in 2018.

The federal government predominantly relies on fixed-price contracts, wherein contractors bear the risk of cost increases. However, relief mechanisms such as FAR 52.229-3—the federal, state, and local taxes clause—offer some recourse. This clause allows contractors to recover costs from after-imposed federal taxes, including new tariffs, but only under specific conditions. The tariffs must come into effect after the contract’s award date, and contractors must provide prompt notice and demonstrate that no contingency was included in their pricing.

A case study Ramish highlighted involved a contractor using domestic steel during the 2018 tariff hikes. Although the tariffs targeted imported steel, domestic suppliers raised prices to match the inflated costs of foreign steel. When the contractor sought to recover the added expenses under FAR 52.229-3, the board denied the claim, ruling that the increased domestic prices were not federally imposed taxes. This precedent underscores the limitations contractors face, as the clause only covers duties on foreign goods and not market-driven price adjustments on domestic products.

To mitigate risks, Ramish recommended leveraging economic price adjustment clauses, which allow contractors to address unforeseen cost fluctuations without building contingencies into their bids. Such clauses can benefit both contractors and taxpayers by preventing inflated contract prices while ensuring contractors are not penalized for market volatility. These clauses are particularly relevant in environments with unstable market or labor conditions.

The interview also emphasized the importance of proactive contractor strategies, such as monitoring tariff developments, understanding applicable FAR clauses, and tailoring bids to address specific risks. Contractors with cost-reimbursement contracts may have an additional safeguard, as they can recover increased costs within the funded amount. Nonetheless, the onus remains on contractors to navigate these complexities and adapt to changing regulatory landscapes.

Ramish also discussed the broader implications of tariffs on U.S. trade relations, noting that tariffs could affect materials sourced from both adversaries and allies, such as Canada and Mexico. Potential renegotiations of trade agreements might further complicate procurement practices, underscoring the need for contractors to stay informed and flexible.

As federal contractors prepare for potential shifts in trade policy and tariff enforcement, this discussion serves as a timely reminder of the interplay between procurement regulations and global economic factors. Contractors must adopt a case-by-case approach to their bids, paying close attention to clauses like FAR 52.229-3 and economic price adjustment provisions. By doing so, they can better navigate the uncertainties inherent in today’s contracting environment.

Disclaimer: This blog post provides general information and is not guaranteed to be accurate. It is not intended as legal advice. For specific legal concerns, consult a qualified attorney.