In the ever-changing tariff landscape, American government contractors are feeling the impact of the federal government's new trade policies in the form of increased costs of imported goods they need to satisfy their government contracts. For example, General Electric, one of the nation's top contractors that specializes in aerospace and electricity, has estimated an increase of $500 million in costs as a result of the import tariffs.1 However, there are specific clauses under the Federal Acquisition Regulation ("FAR") that may allow these contractors to claim refunds from the tariffs or increase their original contract with the government to ensure that the contractors do not have to bear the full cost of the tariffs. This article outlines the different clauses in the FAR or Defense Federal Acquisition Regulation Supplement ("DFARS") that may help importers obtain duty-free imports, an increase in their contract price to aid the higher cost of raw materials or provide an extension in the contract timeline due to supply chain disruptions that the tariffs create.
President Trump has implemented tariff measures under several different legal authorities including the International Emergency Economic Powers Act ("IEEPA"), Section 232 of the Trade Expansion Act of 1962, and Section 301 of the Trade Act of 1974. Beginning in February of this year, President Trump implemented tariffs on imports from Canada, Mexico, and China under IEEPA after declaring a national emergency with respect to the illicit trade and entry of fentanyl from these nations. Following these actions, on April 2, 2025, the president announced the implementation of reciprocal tariffs on imports from all countries and since then has revised and implemented higher, country-specific tariff rates on a multitude of trading partners. In addition, tariff measures under Section 232 have been implemented to target imports of key products including copper, automobiles and automobile parts, and steel and aluminum products and their derivatives.
Together these tariff measures aim to promote domestic manufacturing within the U.S. and incentivize businesses, including government contractors, to buy American made goods and raw materials. The tariffs also aim to bring jobs back to the U.S., particularly in the manufacturing sector. According to the Joint Economic Committee, a bipartisan committee with members of the House and the Senate tasked with advising Congress on U.S. economic issues, a quarter of manufacturing jobs have left the U.S. since 2000, with industries like semiconductors moving overseas.2 Semiconductors are an especially important industry as they are a necessity for making chips that are essential in cars, mobile devices, and military technology, so an effort to bring manufacturing back to the U.S. is very important.
As a result, the Trump Administration has implemented tariffs aiming to bring production of these raw materials back to the U.S. by increasing the price of foreign raw materials and incentivizing U.S. businesses to buy these materials from domestic producers. Through the Trump Administration's "America First" Trade Policy, domestic producers can expect assistance in the form of government focus on promoting domestic production. However, by bringing production back to the more expensive U.S. production and increasing the price of foreign raw materials, the overall price of raw materials increases, creating a higher price for both the U.S. government and contractors. According to the Washington Center for Equitable Growth, costs for manufactures and manufacturing contractors would increase 2% to 4.5% because of the tariffs, due to the number of raw materials that this sector would need to purchase domestically.3
What are the Federal Acquisition Regulations?
The FAR is a set of regulations that executive agencies must follow when acquiring goods and services for government use, and it is important for government contractors to comply with the regulations in order to protect U.S. national security interests. Because it provides many of the guidelines for foreign acquisition, the FAR also include clauses that help contractors mitigate external costs to perform contracts at cost-effective rates.
Dealing with price increases on fixed-price contracts under the FAR
The FAR clause at 52.229 – 3 allows contractors to raise their contract price due to an increase in federal taxes as long as the new tax is implemented after the contract is established. Contractors must timely notify their contracting officer ("CO") about the increase in costs that they may face in order for a contract price to be eligible for an increase. This clause may be extremely helpful for contractors who are directly importing goods as they can effectively get refunded for the unexpected increase in product prices by increasing their contract rates with the government.
Importantly, this clause is only for fixed priced contracts, which have a firm set contract price in contrast with flexibly priced contracts, which have a range of prices but with a set top limit of spending. Flexible contracts are more difficult to navigate in terms of applying for duty-free imports and contract price increases with respect to tariffs.
The FAR clause at 52.249 – 8 allows contractors to achieve an extension on their project deadline due to specific conditions listed in the clause. According to FAR 52.249 – 8(c), contractors are not liable to excess costs if failure to perform stems from an action that is outside of the contractor's control, like "acts of the Government in either its sovereign or contractual capacity." In this case, tariffs would likely fall under this category as contractors could not have predicted that tariffs were going to be implemented leading to increased costs. Additionally, tariffs can create global supply chain disruptions which greatly impact the time it takes for imported goods to arrive in the U.S.
Dealing with price increases through DFARS and flexible-priced contracts under the FAR
DFARS differs from FAR in that it specifically applies to contractors working with the Department of Defense ("DOD") and includes more comprehensive guidelines on protecting U.S. defense security interests. Clause 252.225 – 7013 of DFARS allows government contractors to apply for duty-free entry of some raw materials and goods necessary to their contracting work. Similar to FAR 52.229 – 3, the contractors must timely contact the CO and submit a request for duty-free import of subject goods required to complete their contract. In this case, the contractor could still potentially face higher import costs if a foreign supplier raises product pricing on the front end due to increased tariffs; the contractor would still have to pay the higher price but would not have to pay a high import duty.
The FAR at clause 31.205 – 41 may also allow contractors working under flexible priced contracts to achieve "tax" relief from unforeseen government taxes like the Trump Administration tariffs. Similar to other potential relief methods, government contractors must timely notify the CO of increased costs in order for this form of tax relief to be applicable. This clause functions very differently to FAR 52.229 – 3 as it concerns flexible priced contracts, so it does not directly affect the overall price of the government contract. Instead, it is similar to DFARS 252.225 – 7013, in that the contractor may end up paying a higher price for the foreign goods if the foreign company raises prices, but the contractor will not have to pay import duties on those goods if relief under this clause is ultimately granted.
Conclusion
Although tariffs have caused much economic uncertainty and have affected both foreign and domestic companies, there are certain clauses under the FAR and DFARS that government contractors may utilize to gain potential relief from increased prices stemming from new tariff rates. Contractors should ensure that they maintain effective compliance measures and monitoring systems to comply with FAR and DFARS guidelines and understand when tariff relief may be possible under these regulations.
Footnotes
1. See Megan Cerullo, Tariffs Likely to Drive Up U.S. Prices Even with Trump Trade Deals, Experts Say, CBS News: Money Watch (Jul. 25, 2025), https://www.cbsnews.com/news/tariff-baseline-15-percent-nestle-consumer-prices/.
2. See Joint Economic Committee Democrats, Decades of Manufacturing Decline and Outsourcing Left U.S. Supply Chains Vulnerable to Disruption, https://www.jec.senate.gov/public/_cache/files/94bf8985-1e87-438b-9a3a-e3334489dd30/background-on-issues-in-us-manufacturing-and-supply-chains-final.pdf (last visited Aug. 13, 2025).
3. See Christopher Bangert-Drowns, Tariffs Impact U.S. Industries Differently, with Manufacturing Most Exposed, Wash. Ctr. Equitable Growth (Jul. 29, 2025), https://equitablegrowth.org/tariffs-impact-u-s-industries-differently-with-manufacturing-the-most-exposed/.
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