This article was authored by Michael L. Sterling, the Managing Partner of the law firm Vandeventer Black LLP,, with the assistance of Daniel Salmon, a student at the Washington University School of Law.

The Federal Acquisition Regulations (FAR) may provide potential avenues of relief to government prime contractors, subcontractors and vendors adversely impacted by the steel & aluminum tariffs, as well as recent Trump administration increased tariffs on other products. The tariffs could be construed as a tax or a duty with respect to FAR 52.229-3, and this clause may apply even if the tariff is paid by a subcontractor or vendor rather than directly by the prime contractor.

Recovery under FAR 52.229-3 is dependent on (1) the timing of the contract between the prime contractor and the subcontractor or vendor; and (2) the inclusion of escalation provisions or other express contract commitments within the contract between the prime contractor and the subcontractor or vendor.  Contractors will need to provide requisite notices and follow other FAR prerequisites for contract adjustments.

Finally, there are avenues other than FAR 52.229-3 by which a contractor may seek relief.

Tariff as an “After-Imposed Federal Tax” Under FAR 52.229-3

FAR 52.229-3 permits an increase in contract price when a “Contractor is required to pay or bear” the burden of any “After-imposed Federal tax”, defined as “any new or increased Federal excise tax or duty . . . on the transactions or property covered by this contract . . . as the result of . . . administrative action taking effect after the contract date.”[1]   The Presidential Proclamations associated with the tariffs, as amended, invoke 19 U.S.C. § 2483.[2]  This statute authorizes the President to “embody in the Harmonized Tariff Schedule of the United States [(“HTSUS”)] . . . the removal, modification, continuance, or imposition of any rate of duty or other import restriction.”[3]  19 U.S.C. § 2481 defines “duty” to include “the rate and form of any import duty, including but not limited to tariff-rate quotas.”[4]  The modifications to the HTSUS are appended to the Proclamations and are allocated to different categories.  For example, the Proclamations for increased tariffs on steel and aluminum modify both the “Rates of Duty” and the “Quantitative Limitations” for those imports.[5]

When determining whether increased tariffs can be categorized as “After-imposed Federal tax[es]”, pursuant to FAR 52.229-3, it is instructive to look to the category of the HTSUS modification.  In the associated Proclamations, the tariffs at issue are categorized as modifications to the “Rates of Duty” in the HTSUS,[6]  thereby invoking 19 U.S.C. § 2483’s authority to modify “rate[s] of duty”.  Therefore, if a contractor must pay or bear the burden of this increased “Rate[] of Duty”, then that expense can be categorized as an “After-imposed Federal tax”, or a “new or increased Federal excise tax or duty . . . that the Contractor is required to pay or bear . . . as the result of . . . administrative action taking effect after the contract date”, for the purposes of FAR 52.229-3.[7]

FAR 52.229-3 Relief with Respect to Subcontractors

While there is little law that specifically addresses disputes concerning the application of FAR 52.229-3, the U.S. Court of Claims dealt with a strikingly similar contract clause in Hegeman-Harris &Co., Inc. v. United States.[8]  In Hegeman-Harris, the prime contractor brought an action to recover for an increase in contract price based on an escalation clause that allowed for an increase in contract price in the event of increased federal, state, or local taxes.[9]

The fixed-price contract at issue was “awarded on February 8, 1963 . . . for the construction of a United States courthouse and Federal office building in Albuquerque, New Mexico”,[10] and which had the following provision:

If the Contractor is required to pay or bear the burden (i) of any tax or duty, which either was not to be included in the contract price * * * or was specifically excluded from the contract price by a provision of this contract; or (ii) of an increase in rate of any tax or duty; whether or not such tax or duty was excluded from the contract price; or of any interest or penalty thereon, the contract price shall be correspondingly increased[11]

On April 1, 1963, subsequent to the contract award, the State of New Mexico increased rates on its gross receipts tax and its sales and use tax.[12] The Court of Claims permitted the prime to recover for the increase in gross receipt taxes from the subcontracts which it entered after the rate increases took effect since the “plaintiff [was] as much ‘contractually obligated’ to pay [or bear the burden of the increased taxes], through the medium of increased price, as it would have been by a specific clause in the subcontracts.”[13]  However, the court did not allow for recovery on those contracts which existed before in the state tax increase “barring an escalation clause therein or some other express contract commitment” because, presumably, the subcontracts would not have included a then nonexistent tax increase in the price. [14]

Based on the above analysis, it appears that, provided the prime contractor is obligated to pay or bear the burden of the “After-imposed Federal tax”, it may recover for the difference in contract price even when the party paying the tax is the subcontractor or vendor.  However, without an obligation to pay or bear the burden of the subcontractor’s or vendor’s increased cost, the prime contractor may not be able to recover for “After-imposed Federal tax[es]” born by the subcontractor or vendor.[15]

Other Avenues of Relief

FAR 16.203-1 allows economic price adjustments (“EPA”) upward or downward if “established prices”, “actual costs of labor or material”, or “cost indexes of labor or material” shift upward or downward so long as the contract contains the relevant provision to do so.[16]  FAR 16.203-4 instructs contracting officers to use FAR 52.216-4 to enact the EPA provisions, which contains language on notice requirements, limitations for adjustment, and types of costs for which EPAs are permitted.

Additionally, if the tariffs cause a delay in supply, affected contractors may have an additional remedy.  FAR 52.249-8(c) gives contractors leeway in meeting performance requirements if “failure to perform the contract arises from causes beyond the control and without the fault or negligence of the Contractor.”  Similarly, FAR 52.249-10(b) allows delays in fixed-price construction contracts for such causes.  These causes include “acts of the Government in either its sovereign or contractual capacity.”  Both the U.S. Court of Claims and the Armed Services Board of Contract Appeals (ASBCA) have issued decisions consistent with the FAR clauses enumerated above.[17]


In sum, prime contractors, subcontractors and vendors on federally funded projects should examine their contracts to determine if they include provisions that would facilitate a request for a price adjustment, time extension, or other relief because of the increased tariffs.

[1] FAR 52.229-3 (2013).

[2] See, e.g., Pres. Proc. No. 9740, 83 Fed. Reg. 20683 (April 30, 2018); Pres. Proc. No. 9739, 83 Fed. Reg. 20677 (April 30, 2018).

[3] 19 U.S.C. § 2483 (2018) (emphasis added).

[4] 19 U.S.C. § 2481 (2018).

[5] See Pres. Proc. No. 9740, 83 Fed. Reg. 20683 (April 30, 2018).

[6] See Pres. Proc. No. 9739, 83 Fed. Reg. 20677 (April 30, 2018).

[7] See also Flint v. Stone Tracy Co., 220 U.S. 107, 151 (1911) (citing Cooley, Const. Lim. 680 (7th ed.) (“Excises are ‘taxes laid upon the manufacture, sale, or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges’ . . . .”)); Thomas v. United States, 192 U.S. 363, 370 (1904) (“There is no occasion to attempt to confine the words duties, imposts, and excises to the limits of precise definition. We think that they were used comprehensively to cover customs and excise duties imposed on importation, consumption, manufacture, and sale of certain commodities, privileges, particular business transactions, vocations, occupations, and the like.”); Patton v. Brady, 184 U.S. 608, 617 (1902) (analyzing several definitions of excise tax : (1) “An inland imposition, paid sometimes upon the consumption of the commodity, or frequently upon the retail sale, which is the last stage before the consumption.”; (2) “an inland duty or impost operating as an indirect tax on the consumer, levied upon certain specified articles, as tobacco, ale, spirits, etc., grown or manufactured in the country. It is also levied on licenses to pursue certain trades and deal in certain commodities.”; and (3) “Excises is a word generally used in contradistinction to imposts in its restricted sense, and is applied to internal or inland impositions, levied sometimes upon the consumption of a commodity, sometimes upon the retail sale of it, and sometimes upon the manufacture of it.”).

[8] Hegeman-Harris &Co., Inc. v. United States, 440 F.2d 1009 (Ct. Cl. 1971).

[9] Id.

[10] Id. at 1010.

[11] Id.

[12] Id.

[13] Id. at 1015.

[14] Id. at 1014-15.

[15] Under some circumstances it might be possible for the prime to sponsor a request for an equitable adjustment or claim by the subcontractor the or vendor.

[16] See Tesoro Hawaii Corp. v. United States, 405 F.3d 1339, 1347 (2005) (finding no reason to exclude market-based references from means to identify “established prices”.).

[17] See, e.g., J.D. Hedin Construction Co. v. United States, 408 F.2d 424, 428-30 (Ct. Cl. 1969) (holding in favor of contractor seeking damages for inappropriate termination of contract by government contracting officer when contractor delay was caused by cement shortage and contract clause protected contractor from unforeseeable delays not the fault of the contractor.); Maverick Diversified, Inc., ASBCA No. 19454 (A.S.B.C.A. 1975) (acknowledging that a steel shortage may be an excusable delay if the shortage is shown to be the cause of the delayed performance.)