Tariffs Are Back—and Government Contractors Need to Pay Attention
New tariffs are hitting supply chains hard, and if you're a government contractor—especially with fixed-price contracts—you're likely already feeling the squeeze. In early 2025, the federal government rolled out sweeping new import duties, including a 10% “reciprocal tariff” on most goods and even harsher penalties for imports from China. For government contractors, this isn’t just another trade headline—it’s a cost crisis with real contract performance risks.
Let’s break down what’s happening, why it matters for your business, and what you can actually do about it.
Tariffs Are Back. What Does That Mean for You?
Here’s the plain-English version: the federal government has slapped new import taxes on a huge range of products. Many of the materials and components you use—especially in defense, construction, or tech contracts—are now more expensive or harder to get. Even U.S.-made products often contain imported parts, which means no one is immune.
The impact? Contractors are reporting hundreds of millions in added costs and supply delays. That’s bad news for your budget, your schedule, and potentially your contract standing.
How the FAR and DFARS Can Help You Push Back
The Federal Acquisition Regulation (FAR) and Defense FAR Supplement (DFARS) contain some powerful—but often overlooked—tools for handling tariff-induced chaos:
Cost-type contracts: You’re in better shape here. FAR 31.205-41 generally lets you pass along tariff costs to the government—so long as you didn’t ignore a chance to import items duty-free.
Fixed-price contracts: This is where it gets tricky. You’re locked into a price, but FAR 52.229-3 offers hope: if a new tariff is imposed after award, you can request an equitable adjustment. Timing and documentation are everything.
Duty-free entry: FAR 52.225-8 and DFARS 252.225-7013 let you bring in qualifying goods without paying duties—if the clauses are in your contract and you handle the paperwork correctly. If they’re not in your contract, consider requesting a modification.
Excusable delays: If tariffs delay your ability to deliver, FAR 52.249-8 and similar clauses protect you from default. Notify the CO and document the cause—it could also lay the groundwork for a constructive acceleration claim if you're forced to perform faster at higher cost.
Why This Matters for Small Businesses and Cert Holders
If you’re a small business holding 8a certification, women-owned small business certification, or disabled veteran small business certification, this issue is especially acute. Many set-aside contracts are fixed-price, which puts the cost risk squarely on your shoulders. Unlike large primes, smalls often lack the financial cushion to absorb sudden material hikes.
If your pricing strategy or subcontractor agreements didn’t anticipate tariff swings, your margins could evaporate fast.
Also, if you’re pursuing SBA 8a certification services or planning to go after 8a contracts, remember that GSA, DoD, and SBA reviewers will expect that your cost proposals reflect current trade realities. Underpricing might win the bid, but it can kill your performance.
What You Can Do Right Now
Here’s your action plan:
Review Your Contracts: Do they include FAR 52.229-3 or a duty-free clause? If not, can you request a mod?
Talk to Your CO ASAP: If tariffs hit mid-performance, document it and request an equitable adjustment or schedule relief.
Audit Your Supply Chain: Are there alternate suppliers in non-tariffed countries? Can you switch to domestic sources—even if more expensive, they may net out cheaper after tariffs.
Update Your Pricing Strategy: For new bids, factor in tariffs clearly. Don’t assume you can recover later—it may not be allowed.
Flow Down Clauses to Subs: If your prime contract lets you avoid duties, make sure your subcontractors are taking advantage too.
Consider EPA Clauses: For long-term or high-risk fixed-price contracts, negotiate economic price adjustment clauses up front. Even if it’s not in the solicitation, ask.
The Big Picture
These tariffs aren’t a blip—they reflect a larger policy shift toward economic nationalism and supply chain reshoring. This environment demands a more agile and proactive approach to contracting. Don’t just absorb the hits. Use the tools in FAR/DFARS. Talk to legal and trade experts. Push for contract terms that reflect today’s risks.
Contracting has always been a risk-sharing game. With tariffs, the rules have shifted. Now it’s up to you to make sure your business isn’t left holding the bag.
If you're looking for more insight into how federal policy shifts are impacting contractors, check out our related blog post: "Celebrating Innovation and Opportunity: The Rise in Federal Procurement for Small Businesses". It’s a great follow-up if you want to see how small businesses are adapting and thriving in today’s evolving government contracting landscape.
If you aren't a Squared Compass partner, what are you waiting for? From getting your business set up with specific government set aside programs at both the State and Federal level, to being empowered by a Fractional Capture team to win government contracts, to receiving tailored government contract opportunities Squared Compass delivers immense value which helps propel our partners to success. Schedule a chat with our team today.
