TARIFFS AND MATERIAL COSTS: A MAJOR CHALLENGE AMID SUPPLY CHAIN UNCERTAINTY
Tariffs remain a significant factor destabilizing supply chains and driving up material costs crucial to HVAC and sheet metal work, such as aluminum. Recent tariff hikes, notably driven by the Trump administration’s legacy policies, have increased market uncertainty and largely functioned as hidden taxes, inflating input costs for contractors. Analysts warn of ongoing price instability due to limited domestic capacity for critical metals.
To mitigate the impact of tariffs, contractors may rely on several contractual and regulatory tools under the Federal Acquisition Regulation (FAR). For example:
- FAR 52.229-3 permits contract price increases to reflect newly imposed federal taxes, such as tariffs, provided those taxes were not anticipated in bid pricing.
- Economic Price Adjustment clauses (FAR 52.216-4) may allow contractors to request price adjustments if material cost indices rise due to tariffs.
- Those working under flexibly priced contracts can seek cost recoveries consistent with FAR 31.201-2, which defines the allowability and allocability of such costs.
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Practically, contractors are advised to pre-purchase materials where feasible, identify domestic suppliers, update contract pricing provisions to accommodate cost passes, and scrutinize existing agreements for tariff-related relief or escalation clauses. These steps are vital to protect margins amid ongoing tariff volatility.
- Section 179D Energy Efficient Commercial Building Deduction allows up to $5 per square foot deductions for energy upgrade work in new or renovated projects. This incentive supports contractors specializing in energy-efficient systems.
- Bonus Depreciation and Section 179 Expensing enable faster write-offs for equipment and property investments, which can improve cash flow for contractors upgrading fleets or tooling.
- Advanced Manufacturing Investment Tax Credits (boosted from 25% to 35%) tied to CHIPS Act-facilitated domestic facility expansions open opportunities on construction projects supporting semiconductor and clean energy manufacturing.
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45Q Carbon Sequestration and 45U Nuclear Energy Credits provide indirect support to contractors involved in cutting-edge clean energy infrastructure. While a political tug-of-war persists between the House and Senate over the full package, with the Senate pushing back on some health and deficit elements, the energy-related tax incentives critical to HVAC and sheet metal scopes are expected to be preserved and potentially expanded in the upcoming 2026 tax extender bills.
SMACNA advocates continue to press Congress to bolster workforce development by supporting Registered Apprenticeship Programs (RAPs) and enforcing prevailing wage laws, which are critical for union contractors. These efforts align with the demand for a highly skilled workforce capable of meeting technical challenges posed by advanced energy efficiency and federal infrastructure initiatives.
Efforts to close employee misclassification loopholes and promote Project Labor Agreements (PLAs) drive policy aims to level the playing field and protect contractor competitiveness and labor standards.
Massive federal investments under the Inflation Reduction Act (IRA), the expanded 35% tax credit within the CHIPS and Science Act, and the bipartisan Infrastructure Law continue to catalyze large-scale construction projects, from energy-efficient buildings to advanced manufacturing plants.
Despite some delays and freezes on approved projects due to budget office constraints and legal challenges, the general outlook for CHIPS and data center projects is positive. These initiatives continue to generate sustained demand for HVAC and sheet metal contractor services, particularly for energy-efficient terminal upgrades in transportation hubs, commercial retrofit,s and new clean energy facilities.
SMACNA’s political engagement efforts continue to emphasize growing bipartisan support on Capitol Hill for policies that advance contractors’ economic interests. The outlook stresses building a strong, engaged coalition of legislators to embrace key industry priorities, tax incentives, and favorable regulatory frameworks.
SMACNA is expanding efforts at the state and local level, promoting far greater legislative outreach, education, and targeted advocacy to complement federal actions.
Contractor members have been encouraged to serve as “legislative ambassadors” and to participate, share updates, and insights to reinforce SMACNA’s industry voice in policymaking venues.
Contractors who stay informed and engaged with ongoing political developments, workforce initiatives, and evolving contract rules will continue to be best positioned to safeguard profitability and capitalize on the transformative projects defining the industry’s future.
