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Next Level of Tariffs Will Be Unknowns

Assessing the impact of this next level tariffs on the cost of construction has now become a nearly impossible task. Tariffs are on PARTS use in manufacture of goods. Who (architect? engineer?) will identify what parts are included in which products used in the building?

For example, look at something simple like light fixtures. The shell, the ballast, the reflector, the shade, the lamps or the wiring could be made in China. Who identifies where parts are made? Who now estimates the share of tariff increase on those parts to determine tariff impact on cost of manufacturing the entire light fixture?

Expand that issue to a pump assembly with valves and pressure gauges. Who identifies which parts in the pump assembly come from what country? How does an estimator determine the cost of manufacturing the pumps, valves and gauges and determine what fraction of total cost has a tariff?

This will inevitably lead to inflation, but it will be hidden inflation, hard to determine if a manufacturer’s price increase for a product is substantiated. This is not like the tariff on mill steel, a 25% tariff on mill steel which represents 25% of final structural steel bid, which represents 10% of the building cost.

At the conceptual or schematic design phase of construction, all the products are not even identified. And the project start date might be two years out. It can’t possibly be determined with certainty what factor should be carried to cover cost increases due to tariffs.

Inflation factors and contingency factors will need to increase to cover unknown costs. This increases the share of the budget that is unidentified, always a contentious issues with owners. Frankly with the margins general contractors or construction managers get for services on a large construction project, these unknown factors, if understated in cost factors, could wipe out the total fee or profit for the job.

This is not a good position to be in, but I don’t yet see how it would be any different.

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