Potential Impacts of Tariffs on Canadian Construction Projects

As tariff-related tensions rise between Canada and the United States, it is important to consider
both the direct and more indirect effects of tariffs on construction projects in Canada.

The construction sector will be significantly affected by Canadian retaliatory tariffs and procurement bans. These actions are expected to increase costs and could require the addition of new clauses in bidding documents and contracts. Proactive collaboration between parties and continuous oversight will be essential for navigating these changes effectively.

This article outlines these challenges and offers key considerations to help Canadian construction professionals anticipate and prepare for potential impacts. As this remains an evolving issue, staying informed and adaptable is essential.

Impact of tariffs on the costs of construction projects

In Canada, construction project costs are more directly impacted by Canadian retaliatory tariffs than by the initial U.S. tariffs. These tariffs increase the cost of both raw materials and finished products. The Canadian construction industry relies heavily on American imports, including plywood, glass, ceramics, metal fittings, electrical components, various fixtures, and other building materials.

The Canadian retaliatory tariffs reportedly include a 25% surtax on various U.S. origin goods, many of which are relevant to construction projects, as outlined below:

It is important to understand that Canadian retaliatory tariffs are imposed on goods of US origin—not simply to items shipped “from” the U.S. Canadian methods of determining whether goods “originate” in the US are based on rules set out under CUSMA (the Canada-United States-Mexico Agreement). For manufactured goods, these rules can be quite complex. Additionally, when it comes to provincial and municipal procurement restrictions, the criteria for identifying whether a product or service is “U.S.-based” remain unclear.

Given the complexity surrounding tariffs, it is important during procurement to provide clear instructions to bidders on how to address price uncertainty. If bidders make different assumptions about the impact of tariffs, their proposed prices may vary significantly and become difficult to compare. One way to keep bids clear and consistent is to ask bidders for a base price without including any extra costs for tariffs, and to list any tariff-related costs separately.

It’s also essential to factor in the rising cost of materials and the indirect costs that may arise. Tariffs can disrupt supply chains, making time a critical factor. Sourcing alternative suppliers may cause delays, so this step should be built into the project schedule and budgeted for accordingly. Additionally, rising living costs linked to tariffs may lead to pressure from workers for higher wages, further increasing overall project expenses.

Beyond the impact on future construction projects, it is also important to assess how increased costs may affect existing projects. Contract terms related to compensation should be carefully reviewed, particularly any references to “duties,” which are likely to include Canadian retaliatory tariffs. If such clauses are present, the contract price may need to be adjusted to reflect the contractor’s increased costs, subject to the specific contract terms. In the absence of duty provisions, contractors may be responsible for absorbing those additional costs. Legal advisors should be consulted to evaluate the implications of current contracts, and the inclusion of duty clauses should be considered for future agreements.

However, beyond contracts, it is also important to consider what is fair and reasonable. The Canadian Construction Association (CCA) explicitly “encourages owners to fairly consider requests for price adjustments if contractors are facing unforeseen cost increases due to tariffs.” Additionally, when possible, it can be beneficial for project partners to support each other in finding and sourcing materials that are not subject to tariffs.

Impact of procurement restrictions on construction projects

In addition to Canadian retaliatory tariffs, various federal, provincial, and municipal bodies have introduced procurement restrictions. Many non-governmental organizations have also implemented preferences favoring Canadian and non-U.S. goods and services. In light of these developments, it is important for construction-related organizations to assess whether and how they should adapt their procurement practices accordingly.

First, organizations need to decide whether to engage with procurement restrictions. Patriotic alignment with Canada is one factor to consider. Another factor to consider is reputational risk. It is expected that many companies may decide to impose their own internal procurement restrictions not just out of patriotic support but also due to concern about public opinion. If an organization imposes procurement restrictions, it is important to ensure that all documentation aligns with applicable requirements:

1. Requests for Proposals (RFPs) should include clear language to inform potential bidders upfront about any procurement restrictions.
2. When imposing procurement restrictions and modifying documents, it is important to review them with respect to various applicable laws and regulations. For example, to make sure that procurement bans and their related phrasing do not go against laws related to human rights or competition law requirements.
3. It is important to review whether new procurement restrictions align with internal policies. For example, does your organization have policies that involve purchasing only the lowest-priced items? If so, consider whether new procurement restrictions would contravene such internal policies.

For guidance on these matters, it is advisable to consult a claim & legal professional. Depending on the specific circumstances, additional considerations, such as Canada’s international trade commitments, may also apply.

Key considerations and potential future impacts

For proper drafting of documentation related to procurement restrictions, clarity is key. Beyond specifying procurement restrictions clearly and openly, it is also important to be clear on definitions. For example, what would be the operational definition of “US-based entity”? Would Canadian subsidiaries of US companies be included? Also, what would be the definition of “US goods”, especially if they are manufactured goods involving contact with multiple countries? An additional aspect to consider is whether your organization would have any exemptions. For example, the Canadian federal government does allow for remission from tariffs in certain cases (see this page for more details regarding the remissions). However, the process is discretionary.

Analyzing current actions by the U.S. and Canadian governments offers insight into potential future tariffs. In the U.S., Trump has ordered an investigation into wood, copper, and related products, with a report due in December 2025—though potential tariffs may be announced earlier, possibly by late summer or fall. On the Canadian side, tariffs have not been dollar-for-dollar but targeted at goods from politically sensitive U.S. regions that are also substitutable. Viewing the economic landscape through this lens can help anticipate future tariff developments.

Tariff-related issues, such as rising material costs, are also shaped by other factors, making it essential to stay informed. For example, Canada may reduce certain taxes or fees to offset tariff impacts. In response to increased trade barriers with the U.S., Canada could also lower internal barriers to ease the movement of goods and services across provinces, further influencing costs. In this evolving landscape, construction professionals must remain alert and adaptable. These are indeed “interesting times” for the industry.

How Can JTE Assist Amid Tariff and Procurement Changes?

In response to evolving tariffs and shifting procurement practices, it is essential for project stakeholders to seek guidance from experienced claims consultants and advisors. JTE Claims Consultants Ltd. provides forensic engineering, management consulting, and commercial advisory services tailored to the construction and infrastructure sector. We specialize in construction claims, dispute resolution, surety support, and contract management. Our team is well-versed in the implications of Canadian retaliatory tariffs and procurement restrictions and can help identify risks, adjust contract terms, and support cost management strategies. Contact us to learn how we can support your project through this changing landscape.

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute professional or legal advice. While we aim to provide accurate and up-to-date information, readers should consult with a qualified legal professional for advice regarding their specific circumstances. JTE Claims Consultants Ltd. assumes no responsibility or liability for any errors or omissions in the content of this article.