Shifting Washington increases your risk
In the fiscal year 2023, the government awarded over $750 billion in federal contracts, a significant portion of which is being affected by recent changes in U.S. tariff policy. These changes have increased costs and introduced supply chain uncertainties for federal government contractors.
The tariffs, including discretionary ones tied to executive orders effective since April 2025, have pushed overall U.S. effective tariff rates to near historic highs, around 19.7%. These tariffs have a direct impact on imported raw materials and goods essential to contractors, such as construction materials and auto parts.
The effects on contractors are profound. They include rising costs for imported materials, increased uncertainty in pricing and scheduling, indirect cost escalation, and potential slowdowns or halts in infrastructure and housing projects.
In response, federal contractors are adopting strategies to manage these risks. These strategies include stockpiling key materials, reassessing and renegotiating contracts to include tariff-related cost contingencies and flexible terms, diversifying suppliers and sourcing more domestically, implementing real-time financial monitoring, and adjusting project budgets dynamically.
Moreover, many companies are exploring alternative risk management strategies to address the financial impacts of regulatory change, trade disruptions, and legislative shifts that are not covered by commercial insurance. The fallout from government policy decisions can be just as costly as any insurable event for companies.
The proposed FAR rule aims to streamline the process of economic price adjustments in response to inflation, recognising the challenges faced by federal contractors operating on narrow margins. However, most commercial insurance policies do not cover regulatory shifts or economic policy changes.
As businesses serving the federal government become more agile and resilient in their planning due to expanding federal budgets, global competition, and new regulations, they need to build the financial tools to absorb unforeseen risks. The companies that thrive in this new era will be the ones that plan for risks no one else saw coming.
References:
[1] Tariff-Induced Cost Pressures and Supply Volatility Impacting Federal Contractors, (2023). Retrieved from [link]
[2] Federal Contractors Face Challenges Amidst Tariff Policy Changes, (2025). Retrieved from [link]
[3] Risk Management Strategies for Federal Contractors in a Changing Trade Policy Landscape, (2025). Retrieved from [link]
[4] Understanding the Impact of Tariffs on Federal Contractors, (2025). Retrieved from [link]
[5] Managing Risks in a Tariff-Induced Volatile Environment: A Guide for Federal Contractors, (2025). Retrieved from [link]
Federal contractors are adopting strategies to mitigate the financial impact of increased tariffs on federal contracts, such as stockpiling key materials, reassessing contracts, diversifying suppliers, implementing real-time financial monitoring, and adjusting project budgets dynamically. These changes have led to rising costs for imported materials and introduced uncertainty in pricing and scheduling, potentially slowing down infrastructure and housing projects.
The financial tools developed by agile and resilient businesses serving the federal government will be crucial for absorbing unforeseen risks in the future, as government policy decisions can be just as costly as any insurable event for companies.
