Federal Contractor Guide: Addressing Tariff Impacts in Fixed-Price Contracts

New tariffs under President Trump’s America First Trade Policy are creating significant cost and supply unpredictability for federal contractors. This article outlines these impacts and explores recovery strategies under fixed-price contracts to navigate these economic pressures. Questions about any cases discussed below? Contact the managing partner at marcos@govspringlegal.com or at (202) 609-7501, and follow GovSpring Legal on LinkedIn for regulatory updates.

On April 2, 2025, President Trump issued Executive Order (“EO”) 14257, titled Regulating Imports With a Reciprocal Tariff To Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits. Part of Trump’s America First Trade Policy, the EO imposes a baseline 10-percent tariff on all U.S. trading partners. This is gradually increased to specific rates in Annex I, a list of adjusted reciprocal tariffs based on the U.S.’ trade deficit with a given country. Infamously, the Trump Administration published EO 14266 on April 9, 2025, retaliating against China’s imposed reciprocal tariff of 84-percent by increasing China’s tariffs to 125-percent.

These policies will significantly impact federal contractors, as they now must confront unpredictability in both the availability and pricing of goods required to perform their contracts. This article summarizes federal contractor’s primary options to pursue considering the increased cost of supplies connected to the Trump Administration’s current policies, with a specific focus on relief under fixed-price contracts. We also briefly address excuses related to costs imposed as a result of default and excusable delays due to tariffs.

Options for Relief

As U.S. Senator Jeanne Shaheen (D-NH) points out in her open letter to Secretary of Defense Pete Hegseth on April 16, it is unclear whether the likely increased cost in supplies will factor into future awards of fixed-price defense contracts. With similar ambiguities in the civilian space, federal contractors should look to specific contract clauses and legal theories if they decide to pursue relief because of the Trump Administration’s tariffs and trade policy.

FAR Clause 52.229-3, Federal, State, and Local Tax Clause

FAR 52.229-3(c) provides for an increase in the contract price of a fixed-price contract based on the amount of “[a]ny new or increased Federal excise tax or duty . . . that the Contractor is required to pay or bear as the result of legislative, judicial, or administrative action taking effect after the contract date.” The plain language of FAR 52.229-3(c) could serve as a foundation for a contractor’s strategy to seek relief due to the recent tariffs.

Underlying FAR Clause 52.229-3’s plain language are numerous requirements that may inhibit contractors from utilizing this clause as a means of relief. These conditions include:

• The contract must: (1) be performed wholly or partially in the United States or its outlying areas; and (2) exceed the simplified acquisition threshold (“SAT”);
• A contractor’s requirement to inform the contracting officer (“CO”) of any matters that will result in a contract price increase or decrease due to any federal excise tax or duty; and
• Verifying that the increased tax or duty will lead to a direct price increase that the contractor must bear.

Failing to overcome any of these hurdles may limit recovery of duties under FAR 52.229-3.

Economic Price Adjustment Clauses (FAR Clauses 52.216-2, 52.216-3, & 52.216-4)

FAR 52.229-3 alone does not represent the sole or primary method contractors can seek relief if impacted by the newly imposed tariffs. Under certain fixed-price contracts (e.g., standard supplies, semistandard supplies that can be compared to supplies with established market prices, no design or development work) exceeding the SAT, an economic price adjustment (“EPA”) can increase the contract price. Increases under a fixed-price contract with EPA cannot exceed a total of 10-percent above the original contract price, and the contractor must formally request the EPA to the CO.

This form of relief assumes that a contractor’s underlying contract is a fixed-price contract with EPA as the government’s policy is to not use this contract type unless the CO determines this type is appropriate to protect against “[s]ignificant fluctuations in labor or material costs.” The 10-percent limit to increases in contract price would also likely fail to provide a contractor with sufficient recovery given the current and projected tariff rates.

FAR 52.249-8, Default (Fixed-Price Supply and Service)

There may also be relief from reprocurement costs if the Government chooses to terminate a contract due to difficulties performing caused by tariffs. The consequences stemming from the Trump Administration’s tariffs and America First directive extend beyond increases in costs for goods necessary for contract performance. Significant, unforeseeable supply chain shortages and disruptions may frustrate a contractor’s ability to perform under a fixed-price contract. Contractors may not be able to get needed parts, or there may be shipping delays, or costs may become prohibitive. FAR 52.249-8 shields contractors performing contracts above the SAT from liability for costs “if the failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor.” Certain results of tariffs, which may qualify as an “act of the Government” under the clause, may result in this haven from liability for excess costs. Contractors should be cautious when citing cost increases alone as a basis for non-performance, particularly on a fixed-price contract.

FAR 52.249-14, Excusable Delays

Similar to the relief from excess reprocurement costs, there may also be relief from default related to delays due to tariffs. Under FAR 52.249-14, causes of delay that are beyond the control of the contractor and subcontractors are excusable, unless:

(1) The subcontracted supplies or services were obtainable from other sources;

(2) The Contracting Officer ordered the Contractor in writing to purchase these supplies or services from the other source; and

(3) The Contractor failed to comply reasonably with this order.

Extraordinary Relief Under Public Law (“PL”) 85-804

Although less likely to provide relief, particularly for non-DoD contractors, one rarer form of relief could be available through PL 85-804. Dating back to August 28, 1958, PL 85-804 authorizes the President to direct any or all agencies and departments to amend or modify a contract without regard to existing law if doing so would “[f]acilitate the national defense.” FAR Subpart 50.103-2 clarifies this authority by requiring amendments under PL 85-804 must satisfy three specific conditions:

• An actual or threatened loss under a defense contract;
• Which would impair a contractor’s “productive ability” in performing on a defense contract; and
• Found to be essential to the national defense

A contractor seeking increased pay under this law would need to make this request in writing to the contracting officer, documenting the rationale for how each element is met under its contract. This remedy is not likely for contractors at civilian agencies, unless related to President Trump’s national security memoranda touching on immigration or other related matters conceivably covered by civilian agencies.

Federal contractors with fixed-price contracts face an uphill battle if they seek to mitigate the cost impact of the Trump Administration’s tariffs by passing these costs to the government. This problem is confounded by the unpredictable nature of how tariffs will be utilized during President Trump’s second term. Contractors should nevertheless consider the above recovery strategies to ensure they position themselves properly and decrease the America First Trade Policy’s impact on their costs.

GovSpring is available to help contractors and companies understand how the prospective FAR revision may impact their current and future requirements under existing contracts, as well as how future procurements will be conducted by federal agencies. Click here to schedule a consultation or fill out our online contact form if you are in need of legal services.

This article was co-authored with Aaron Silva. Aaron is currently a third-year law student at The George Washington University Law School, with a focus in Government Procurement and International & Comparative Law.