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Can force majeure clauses offer relief from steel tariff costs?
By Chantal Fink on August 10, 2018 at 12:15 PM

Steel rods on a dock ready to be loaded for transportThe United States’ recent imposition of a 25 percent tariff on imported steel has been problematic for contractors and subcontractors alike. The increased cost of steel means increased costs on projects, and in many occasions, on projects for which parties have already entered into contracts. In fact, benchmark U.S. steel prices have risen almost 40 percent since the beginning of the year, according to an Engineering News-Record report. In these situations, can a contractor or subcontractor find relief from additional costs in the force majeure clause of their contract? While Missouri courts have not addressed the relationship between increases caused by tariffs and force majeure clauses, extra-jurisdictional courts have offered some guidance on how tariffs could be treated under such a clause.

Generally, a force majeure (or “escape”) clause is a contract provision that relieves parties from performing their contractual obligations when an unforeseen event or act of God beyond their control arises, making performance of the contract commercially impracticable or impossible. It is common for force majeure clauses to be phrased as a catch-all, though occasionally they will also enumerate specific types of occurrences that will be deemed “unforeseen” when they occur. A catch-all clause will typically suspend performance for incidents beyond the parties’ control.

Are tariffs imposed on steel imports to the United States considered a qualifying occurrence under the usual force majeure provision? Not likely. The United States Court of Appeals for the Fourth Circuit has held that fluctuating market conditions making performance of a petroleum-supply contract unfavorable for one party did not fall under the force majeure clause in the parties’ contract. Langham-Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327 (4th Cir. 1987). Although the clause was worded broadly to include “any act or omission beyond the control of the party having the difficulty, and any restrictions or restraints imposed by laws, orders, rules, regulations or acts of any government or governmental body or authority, civil or military,” the court found that Saudi Arabia’s attempt to acquire market share and the subsequent collapse of the world crude oil market was a risk of the market and an unfortunate reality of the business world, not an occurrence covered by the parties’ force majeure clause. It appears from the law available on the issue that economic hardship (including increases or decreases in the market price for a good) is typically not a force majeure event. See also Hemlock Semiconductor Corp. v. Kyocera Corp., No. 15-CV-11236, 2016 WL 67596, at *7 (E.D. Mich. Jan. 6, 2016) (holding that the bargained for force majeure clause did not excuse the defendant’s performance simply because of an unfavorable market fluctuation in the global solar market conditions).

While the more typical force majeure clauses may not offer the protection a contractor seeks after a price increase caused by a tariff, a prudent contractor could try to negotiate for a provision that addresses fluctuating market conditions (assuming negotiation is possible — something not available in most public bidding scenarios).

In negotiating for relief from unusual market price fluctuations such as price increases due to a unforeseen tariff, contractors should use specific language, as a force majeure clause including the language “acts of government,” without more, likely will not cover government acts that merely make performance of the contract unprofitable. Some courts have indicated that more specificity in the force majeure clause might have saved a contractor or subcontractor from performance. See Seaboard Lumber Co. v. United States, 308 F.3d 1283 (Fed. Cir. 2002) (holding that although a contract allowed for term adjustment if “acts of government” prevented performance under the contract, it lacked the necessary specificity by not defining what should constitute an “act of government”). Therefore, while the usual force majeure clauses may not be the answer to today’s steel contractor’s pricing issues, negotiating specific language to account for tariffs or market changes should afford the desired protection.

Greensfelder summer associate Emily Jaeger contributed to this blog post.

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