The recent surge in tariffs has left US manufacturers and construction firms scrambling. With new duties of up to 25% on steel, aluminum, lumber, drywall, electronics, and other vital inputs, many companies are being squeezed between fixed-price contracts and rapidly inflating costs. It's no wonder that over 76% of manufacturers cite trade uncertainties as their top challenge as of March 2025.
What makes the situation even more challenging is the unpredictability—tariff policies seem to be continually changing, often overnight, leaving already busy procurement and supply chain teams constantly playing catch-up. Decisions made today might be obsolete tomorrow, amplifying financial and operational risks.
In such an uncertain environment, understanding exactly where contracts expose your company to risk becomes essential. This blog offers guidance on identifying and monitoring critical contract-related risk signals, helping you proactively navigate volatility and protect your margins.
Tariffs create immediate financial pressure. Many mid-sized companies work under fixed-price or guaranteed maximum price (GMP) contracts, making sudden input cost hikes a severe threat to margins.
According to a recent PYMNTS survey, 65% of CFOs have already entered negotiations with suppliers due to tariff-driven price increases. Having clearly defined escalation clauses can simplify these difficult conversations.
With global supply chains facing unprecedented disruption, suppliers struggling with tariffs can miss crucial delivery obligations. This creates costly downstream disruptions for your projects or manufacturing lines.
Legal experts emphasize reviewing these clauses promptly, as the definitions of qualifying events vary widely across contracts.
A major hidden risk emerges when your customer contracts have fixed prices, but supplier contracts allow costs to float with tariffs. This mismatch directly leads to lost profitability.
Many of manufacturers currently struggle with reconciling supplier cost increases against fixed customer pricing. Addressing this mismatch proactively is crucial to protecting your profitability.
Tariffs bring complexity around compliance with customs, origin labeling, and trade regulations. Mistakes in these areas can result in significant financial penalties from U.S. Customs and Border Protection (CBP).
CBP continually highlights the steep fines associated with incorrect tariff codes or misrepresented product origins. Procurement teams must build compliance checkpoints into their contract management practices.
Contracts often stipulate minimum purchase volumes or penalties for failure to meet obligations. When tariffs necessitate sudden sourcing changes, these clauses can trigger unexpected penalties.
Many manufacturers remain locked into inflexible supplier agreements, which can limit agility during tariff-driven supply chain shifts.
Sometimes contractual risks manifest subtly in financial data before they're clearly seen in operational disruptions. Keeping an eye on certain operational indicators can highlight hidden contract problems.
Prolonged supplier lead times and increased inventories can be clear symptoms of tariff-driven supply chain disruptions. These early signals can indicate hidden contractual risks.
Effective response to tariffs requires quick, accurate insights into your contracts. Unfortunately, many organizations suffer from fragmented, scattered contract data, limiting their responsiveness.
Many leaders struggle with fragmented contract insights, hampering quick decisions during tariff-induced challenges. Improving internal contract visibility is foundational for proactive risk management.
Given these risks, it’s crucial amidst an unpredictable tariff environment to set up effective monitoring workflows. For already strained procurement and finance teams, layering in technology along with the human element becomes especially essential. Here is what teams should be doing:
Tariff volatility doesn't seem to be fading anytime soon. U.S. manufacturing and construction sectors must actively protect themselves through systematic, vigilant contract management. Prioritizing clear visibility into key terms, obligations, and compliance risks isn’t just administrative—it’s now strategically vital.
By proactively monitoring the signals outlined here, procurement and supply chain leaders can dramatically reduce tariff-induced damage, ensuring their contracts protect rather than punish their bottom line.
Navigating tariff-driven volatility demands clear visibility into your contract risks. Execo combines expert human oversight and AI-powered insights to instantly surface and proactively manage the hidden risks within your supplier and customer agreements. Interested in seeing exactly where your contract risks lie—and how you can protect your margins immediately? Request your no-cost assessment here.