Impacts of tariffs on Canadian infrastructure projects
Immediate impacts
The U.S. tariffs impose 25% duties on most Canadian goods and 10% on energy, with additional 25% tariffs on automobiles. Canada’s counter-tariffs target $155 billion of U.S. goods, including infrastructure-critical materials like steel, automobiles for construction vehicles and equipment, glass and HVAC equipment. These measures are projected to increase infrastructure project costs by $1 billion over two years.
- Cost increases: Material costs for steel, aluminum, glass, and automotive components may rise by 10% to 25%, with greater impacts on cross-border supply chains.
- Supply chain disruptions: Material delivery delays are stalling projects, with future initiatives facing postponed starts or cancellations.
- Contractual disputes: Fixed-price contracts typically place tariff cost risks on contractors unless escalation clauses exist, while cost-plus contracts may allow cost pass-through to owners.
- Compliance risks: Tariff-related delays or cost escalations may trigger non-compliance with project timelines, leading to disputes.
Long-term impacts
Tariffs are projected to result in a significant economic contraction, including a notable GDP decline by 2.5% and increased unemployment rates above 7%. Additionally, higher tariffs could exacerbate these impacts, leading to reduced consumer income and constrained government budgets. This economic slowdown could limit public investments, particularly in housing and infrastructure development. While these pressures may slow development, they also spur domestic investment, policy reforms, and infrastructure expansion, as discussed below.
Adapting contracts for tariff turbulence
To manage tariff risks, project owners and contractors must review contracts, focusing on:
- Material price adjustment clauses: Define conditions for claiming cost escalations from tariffs.
- Force majeure and change-in-law clauses: Assess whether tariff changes qualify as unforeseen legal modifications.
- Notice and claim submission requirements: Ensure compliance with claim notification timelines.
Future contracts should include tariff escalation clauses and risk-sharing mechanisms. For instance, fixed-price contracts may require contractors to absorb cost increases unless clauses allow adjustments, while cost-plus contracts may permit cost pass-through.
Cost containment and tariff mitigation strategies
To mitigate tariff impacts, project owners and contractors should adopt these eight strategies, demonstrating proactive cost management for claims:
Use local substitutes, minimize waste, and apply value engineering to meet design requirements.
Prioritize recycled materials to lower costs and reduce dependence on tariffed inputs.
Lock in material costs upfront with short-term storage solutions.
Explore coverage for supply chain disruptions or delays.
Adjust loan terms to free funds for efficient equipment or skilled labor.
Access subsidies and grants through the Canada Infrastructure Program or Canadian Infrastructure Bank (CIB).
Use modular construction or digital supply chain platforms to boost efficiency.
Stakeholders may also advocate for policy relief, such as GST reductions on infrastructure or expanded tariff remission programs.
Responsible project execution
Tariffs may prompt project fast-tracking, but stakeholders must avoid bypassing Indigenous consultations or environmental assessments to prevent legal and social risks. Engaging Indigenous communities early and adhering to environmental standards ensures compliance and supports project viability. For example, pipeline projects benefit from robust consultation to streamline approvals and avoid unnecessary future delays caused by legal battles.
Managing tariff-related claims
Claims for tariff-related cost increases or delays require proof of direct causation, distinguishing tariff impacts from other factors (e.g., weather, global conflicts). Documentation includes:
- Historical data comparisons
- Import duties and customs fee adjustments
- Pre- and post-tariff supplier quotations
- Time and cost impact analyses
Demonstrating that you have undertaken mitigation efforts (e.g., diversified procurement) strengthens claims and aids dispute resolution.
Opportunities amid tariffs
Tariffs present significant challenges but also drive positive transformations in Canada’s infrastructure sector:
These opportunities align with Canada’s resilience strategy, fostering self-sufficiency, job creation, and infrastructure growth.
How BDO can help
To mitigate infrastructure challenges and maintain project viability, project owners and contractors can rely on BDO’s infrastructure advisory practice. Navigating the volatile tariff situation on both sides of the border is a complex task that can have significant impact on current and future projects. We help clients understand and prepare for the upcoming tariff changes so they can make informed decisions about supply chain alternatives, material sourcing, investment strategies, and more.
We support Canadian project owners and contractors in many ways:
Contact us to discuss solutions for your operation amidst the turbulent tariff environment. We’re here to provide you with a clear understanding of how tariffs are affecting the infrastructure sector and offer guidance on keeping your projects viable.
Conclusion
The U.S. and Canadian tariffs of 2025 challenge Canada’s infrastructure sector with cost increases, supply chain disruptions, and contractual complexities. However, strategic responses—diversified procurement, green building, technology adoption, and government support—mitigate impacts. Responsible execution, balancing speed with Indigenous and environmental considerations, ensures sustainable progress. Positive outcomes, including “Buy Canadian” initiatives, reduced trade barriers, and new pipeline projects, position the sector for growth. By embracing these opportunities and advocating for policy relief, Canada’s infrastructure can emerge more resilient and self-sufficient.