Seeking Equitable Adjustments in New Jersey Public Contracts: How Proposed 2025 Tariffs Could Trigger Relief

President Donald Trump has announced tariffs on approximately 60 countries, including the United States’ three largest trading partners, China, Canada and Mexico. As a part of these tariffs, goods imported from Mexico and Canada will be subject to a flat 25% tariff while goods imported from China will come with a staggering 145% tariff. Considering that the United States imported approximately 40% of its steel from Canada and Mexico in 2024 and “currently imports roughly 30% of [its] softwood lumber” from Canada, it is safe to assume that the Trump administration’s tariffs will impact government contracts across the U.S. and New Jersey. Tariffs have the potential to impact the cost of everything from building materials to electronic components. As a result, many contractors may be entitled to an equitable adjustment of their public contracts to make them whole.

Mechanisms for Revising Public Contracts

Public contracts, particularly construction or public works contracts, are subject to modification when unforeseen circumstances arise during the course of the contract that impact cost or performance. Depending on the reason for the change in contract, contractors in New Jersey facing unexpected cost increases have several mechanisms to seek revisions to a public contract. 

First, a public contract may be revised by a change order.If the public contracting agency modifies the project scope, or if differing site conditions are encountered during performance, contractors can negotiate adjustments to the contract pricing or schedule. See, e.g., N.J.S.A. 40A:11-16.7 (“Changed conditions clauses for certain local public contracts.”)

Second, performance under a public contract may be excused, in whole or in part, by an event rendering performance impracticable or impossible. Many public contracts include a force majeure provision for unforeseen, extraordinary or uncontrollable events (like pandemics, wars, natural disasters or labor strikes) and even in the absence of such a provision, a party may be relieved of the duty of performance based on the defense of impracticability.

The final mechanism, and the one of most interest here, is the revision of a public contract under a theory of equitable adjustment. An equitable adjustment is used to keep a contractor whole when the government acts in some way to modify a contract. In short, an equitable adjustment is a mechanism to ensure contractors are not unfairly disadvantaged by changes beyond their control and which are caused by the government/contracting unit. 

The Standard for Equitable Adjustments in New Jersey

In M.J. Paquet, Inc. v. New Jersey Department of Transportation, Paquet was awarded a contract by the New Jersey Department of Transportation to rehabilitate various highways and bridges (171 N.J. 378, 381 (2002)). About one year after the contract’s award, the Occupational Safety and Health Administration (OSHA) issued revised regulations regarding bridge painting, causing the price of the painting work to increase significantly. The Department decided to remove the painting work from the contract when the parties could not agree on a new price. However, in preparing its bid, Paquet had included other contract cost items in its painting line items after it received a late estimate from its painting subcontractor, resulting in an unbalanced bid. An unbalanced bid occurs when a contractor significantly under or over values the actual cost for specific items of work within a bid, shifting profit and costs to other line items within the bid. Depending on the reason for the unbalanced bid, it may be of concern to the bidding entity. When the Department removed the bridge painting work from the contract, Paquet sought an equitable adjustment to the contract to compensate it for the additional, non-painting related work found in the painting line items. 

In its decision, the New Jersey Supreme Court noted that the cost increase as a result of the new OSHA regulations was not reasonably foreseeable at the time Paquet submitted its bid and it “harbored no improper motives in submitting its unbalanced bid” (Id. at 400 – 401). Therefore, the Court held, “[f]airness dictates that Paquet be compensated for its costs of completed work. In other words, Paquet is entitled to an equitable adjustment” (Id. at 400).

The Court held, among other things, that an equitable adjustment is warranted when a government entity modifies the public contract or enacts new regulations or legislation, resulting in a significant change in the contractor’s cost to perform the work outlined in the contract.The “proper measure [for an equitable adjustment] is ‘the difference between what it would have cost to perform the work as originally required and what it cost to perform the work as changed.’”  (Id. at 392 (quoting General Ry. Signal Co. v. Washington Metro. Area Transit Auth., 875 F.2d 320, 324 (Cir. 1989).)

Proposed 2025 Tariffs as a Basis for Equitable Adjustment

If the Trump administration does indeed move forward with the proposed new tariffs on goods imported into the U.S., contractors locked into fixed-price contracts, which were bid long before the tariffs were imposed, could face significant losses.

Under M.J. Paquet, contractors may be entitled to an equitable adjustment if the tariffs were not anticipated at the time of bidding or the tariffs can be shown to be the direct reason for the increase in cost for the contracted work or materials necessary for the work.

Contractors should review the language in their public contract to determine whether there is an existing mechanism to address cost increases as a result of government action. However, even in the absence of such provision in the contract, if a contractor is faced with increased costs resulting from newly implemented tariffs or government regulation, the contractor can submit a request for equitable adjustment to the contract.

Conclusion

New Jersey contractors facing unanticipated costs of performance as a result of new tariffs may have a strong argument for an equitable adjustment to their public contract under M.J. Paquet.  Proactive legal review is essential to navigating these potential public contracting challenges.

Stevens & Lee’s Administrative Law and Government Contracts Group provides advice on all aspects of public procurement and regularly assists clients with bidding and contracting issues. For questions regarding how these tariffs or any other new regulations may affect your business, or as to any other government contracting issues, please contact Patrick D. Kennedy, Maeve E. Cannon, Michael A. Cedrone or Catherin MacDuff from our Administrative Law and Government Contracts Group.