On February 1, Donald Trump signed an executive order imposing a 25% tariff on all Canadian products entering the United States. The order made an exception for energy resources (oil, gas, etc.), which would be subject to a lower tariff of 10%. The measure was scheduled to take effect on February 4, but was postponed until March 1.

In response, Canada announced that it may impose tariffs on several U.S. products. The Quebec government is also considering certain retaliatory measures, including a 25% penalty on U.S. companies bidding on Quebec government contracts.

Then on February 10 and 11, 2025, President Trump signed two additional executive orders imposing 25% tariffs on steel and aluminum products. These tariffs will be in addition to those announced on February 1, potentially bringing the total tariff rate on these materials to 50%.

Canada has not yet announced whether it will retaliate with tariffs on U.S. steel and aluminum imports, as it did in 2018. However, given that Canada was the second-largest importer of U.S. steel in 2023, accounting for just over 46% of all exports, there is concern that this could lead to higher prices for certain materials.

Allocation of price increase risk varies by contract

In a cost-plus contract, things are relatively straightforward: the contractor typically invoices the client based on the actual cost of materials purchased for the project. Therefore, if there is an increase in the cost of certain materials, the client generally foots the bill.

However, this is not the case when the price is fixed by the contract. According to section 2109 the Civil Code of Québec, the risk of an increase in the price of materials during the term of the contract is borne by the contractor:

2109. Where the price is fixed by the contract, the client shall pay the price agreed, and may not claim a reduction of the price on the ground that the work or service required less effort or cost less than had been foreseen.

Similarly, the contractor or the provider of services may not claim an increase of the price for the opposite reason.

Unless otherwise agreed by the parties, the price fixed by the contract remains unchanged notwithstanding any modification of the original terms and conditions of performance.

Historically, courts have refused to allow an adjustment of the contract price due to increases in the price of raw materials.

The doctrine of unforeseeability is not recognized in Quebec law, which means that a contractor cannot claim that these tariffs were unforeseeable at the time the contract was signed. Similarly, a claim of superior force (force majeure) based on an increase in the cost of materials due to tariffs is unlikely to succeed.

To qualify as superior force, an event must be unforeseeable, irresistible and due to an external cause. Simply making performance of the contract more difficult, dangerous or expensive does not meet the standard of force majeure.

In addition, contracts often contain a clause stating that the contract price includes all taxes and duties:

The contract price includes all federal, provincial and municipal taxes, customs duties and fees, permits, licences, royalties for the supply and use of patented devices, apparatuses or processes, all related expenses necessary for the performance of the project and all other costs required by the contract documents.

Such clauses have been interpreted to include future taxes.[1] It is therefore possible that the courts may reach a similar conclusion with respect to new customs duties.

The solution: A price adjustment clause

Parties are strongly advised to include a price adjustment clause in their contracts. This clause limits the risk of disputes over a sudden increase in material costs due to tariffs and prevents clients from overpaying for price fluctuations that may never materialize.

For example, Article 10.1.2 of the CCDC 2CcQ-2024 Stipulated Price Contract (Civil Code of Québec) allows the contract price to be adjusted in the event of changes in taxes and customs duties after the bid has been submitted:

[TRANSLATION] 10.1.2 Any increase or decrease in the contractor’s costs resulting from changes in taxes or duties included in the contract price and occurring after the closing of the bidding process shall result in a corresponding increase or decrease in the contract price.

A similar clause was upheld by the Court of Appeal of Quebec to account for the introduction of the Goods and Services Tax (GST) in the 1990s, when contractor prices did not originally account for this new tax. Suffice it to say that the issue of tariffs will be one to watch closely in the coming weeks and months as it could have a significant impact on contracts and construction projects.

[1] Construction G. Di Iorio inc. c. Pointe-Claire (Ville de), (C. S., 1991-09-23), SOQUIJ AZ-91021552; Marcel Charest & Fils inc. c. Rivière-du-Loup (Ville de), (C.A., 1993-02-17), SOQUIJ AZ-93011303