Tariffs are not “inflation.” Stop treating them like they are.
The common failure mode: you sign a fixed-price deal, a tariff changes (or a country-of-origin interpretation changes), and the business asks procurement to “hold the line.” That’s not negotiation. That’s margin transfer.
If tariffs are in scope for your category, you need contract language that (1) defines what counts as a tariff event, (2) states whose problem it is, and (3) forces evidence and timing so nobody can sandbag you with a surprise claim.
The clause: Economic Price Adjustment (EPA) for tariff volatility
An EPA clause is the cleanest way to handle tariff risk without reopening the entire contract. You’re not “being nice” to the supplier. You’re creating a pre-agreed mechanism so the only argument later is whether the trigger happened and what the math is.
What your EPA needs to say (not just “prices may be adjusted”)
Trigger: define the event. Example: “A change in U.S. import duties, tariffs, or trade remedies applicable to the Products, effective after the Effective Date, that increases or decreases Supplier’s landed cost.”
Scope: list which SKUs/CLINs/part numbers are covered. Don’t let a tariff on one component become a blanket increase on all items.
Direction: make it symmetrical. If tariffs go down, prices go down. You’ll get less pushback when it’s not a one-way ratchet.
Baseline: lock the reference point. Example: “Baseline tariff rate and classification are those in effect on the Effective Date under the HTS code(s) listed in Exhibit X.”
Evidence: specify required documentation (entry summaries, duty statements, broker invoices, CBP notices, supplier bills of material if needed). No documentation, no adjustment.
Timing: set notice and filing deadlines. Example: “Supplier must notify Buyer within 15 business days of learning of the change and submit a priced claim within 45 days.”
Math: define the formula. Adjust only the tariff-affected portion of the price (typically duty on imported content), not overhead, margin, or unrelated freight.
Caps/thresholds: add a de minimis threshold (e.g., no adjustment unless net impact exceeds X%) and/or cap per quarter to prevent constant repricing noise.
Mitigation: require reasonable efforts to reduce impact (alternate sourcing, classification review, FTZ use where lawful). You’re buying effort, not miracles.
Sample language you can actually paste into a draft
Use this as a starting point and have counsel tune it to your template: “Economic Price Adjustment—Tariffs. If, after the Effective Date, any new or increased tariff, duty, or trade remedy becomes applicable to the Products (a ‘Tariff Change’) and directly increases Supplier’s documented landed cost for the affected Products, the Parties will adjust the Contract Price for only those affected Products by the net amount of the Tariff Change. Any adjustment will exclude changes in Supplier overhead, profit, or non-tariff costs. Supplier must provide reasonable documentation of the Tariff Change and its application to the affected shipments, including HTS classification used, country of origin, and customs entry documentation. Supplier must notify Buyer within fifteen (15) business days of becoming aware of a Tariff Change and submit a request for adjustment within forty-five (45) days. Price decreases due to reduced or eliminated tariffs will be passed through on the same basis. No adjustment will apply to Products shipped prior to the effective date of the Tariff Change.”
Two notes from the room where this gets negotiated: (1) Suppliers will try to broaden “landed cost” to include everything they can’t control. Keep it tight. (2) Buyers often forget the downward adjustment. That omission comes back as a credibility problem when you need the supplier to accept discipline on evidence and timing.
Country-of-origin and classification: write it down or you’ll fight about it later
Tariff impact depends on country of origin and classification. If the contract is silent, you’re gambling that the supplier’s origin determination matches your assumptions—and that it won’t change when they move a sub-supplier.
Minimum structure that prevents “origin drift”
Country-of-origin requirement per item (or per bill-of-material family). Example: “Country of origin for Part A shall be Vietnam.”
Change control: supplier must obtain written approval before changing origin, manufacturing location, or key sub-suppliers for specified components.
Disclosure: require a country-of-origin certificate on request and a standing obligation to notify within X days of any change.
Classification reference: list expected HTS codes in an exhibit. You’re not acting as the importer’s broker; you’re setting a shared reference point for the EPA baseline.
Remedy: if supplier changes origin without approval and it increases duty, the supplier eats the delta (or the change is a breach with defined remedies).
This is where people get uncomfortable because it sounds “too detailed.” It’s not. If tariffs are a real risk, origin is a commercial term, not a compliance footnote.
Long-duration programs: don’t bet on a single price. Phase it.
If you’re buying for 24–60 months and the supply chain crosses borders, a single fixed price is usually the wrong hill to die on. The practical hedge is phased procurement with defined re-pricing windows. This keeps competition and performance pressure while giving both sides a controlled way to reset assumptions.
A simple phased structure that works
Phase 1: a short initial term (e.g., 6–12 months) priced firm-fixed, with the EPA clause active for tariff changes only.
Phase 2+: option periods or scheduled “re-price events” every 6 or 12 months, using a defined request package (updated BOM, origin list, tariff baseline, and proposed unit prices).
Re-price rules: limit what can change. Example: only tariff-impacted content, documented labor indices (if you allow them), and agreed freight lanes—not a full reset of margin.
Decision rights: buyer can accept re-priced rates, negotiate, or compete the next phase if the supplier’s ask is out of line.
Operational bridge: require the supplier to continue performance during the re-price negotiation at prior rates for a defined period, with true-up once agreed.
The trade-off: phased structures add admin work. The upside is you avoid the ugly alternative—emergency sole-source justifications, quality shortcuts, or a supplier quietly de-prioritizing your orders because they’re losing money.
What to do on Monday: a contract redline checklist
Pull your top 20 cross-border SKUs and mark which ones are tariff-sensitive (high imported content, single-country dependency, or frequent origin changes).
Add an EPA clause that is (a) symmetric, (b) evidence-based, (c) time-bound, and (d) SKU-scoped.
Create Exhibit X: item list with expected country of origin and HTS code reference. Make changes subject to written approval.
Add notice and documentation requirements that match how your AP and receiving teams work (don’t demand documents you’ll never review).
For any program longer than 12 months, propose phased pricing: fixed initial term plus scheduled re-price events with narrow allowed variables.
Decide your “no-fight” thresholds now (de minimis %, cap per quarter, and which documents are mandatory) so you’re not inventing policy mid-dispute.
If you do only one thing, do this: stop signing fixed-price language that treats tariffs as “supplier’s problem” without an origin control and an EPA mechanism. That posture feels tough until the first disruption, when it turns into a relationship blow-up or a hidden margin leak.