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On April 2, we reported that Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois had issued a temporary restraining order blocking the Department of Labor from enforcing certain provisions of Executive Orders 14173 and 14151, both of which limit or prohibit federal grants or programs relating to “illegal,” “unlawful,” and “immoral” diversity, equity, and inclusion (“DEI”). Earlier this week, Judge Kennelly granted a preliminary injunction in that case, barring the Department of Labor from (1) requiring the plaintiff, Chicago Women in Trades (CWIT), to make certain certifications required by Executive Order 14173, and (2) terminating certain federal grants to CWIT as required by Executive Order 14151.

Certification Requirement

First, the Court enjoined the Department of Labor from requiring any grantee or contractor to make a certification that it does not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws,” as required by section 3(b)(iv) of Executive Order 14173 (the “Certification Provision”). At oral argument, the government conceded that the Certification Provision attempts to regulate grantees’ speech outside of their federally funded programs. Moreover, the Court found that the Executive Order’s express reference to “programs promoting DEI” is fairly read to be an express reference to speech and advocacy protected by the First Amendment. The Court found that CWIT demonstrated that it was likely to succeed on the merits of its claim challenging the Certification Provision on the basis that the provision violated CWIT’s rights to freedom of speech and advocacy under the First Amendment.

Grant Termination

The Court also enjoined the Department of Labor from terminating the Women in Apprenticeship and Nontraditional Occupations (WANTO) grant, one of the five grants that CWIT receives from the government. The Court held that CWIT was likely to succeed in its claim that the provision of Executive Order 14151 requiring agencies to terminate grants and contracts with organizations that promote DEI violated the separation of powers established by the U.S. Constitution because the Spending Clause of Article 1 of the Constitution gives the “power of the purse” – the power to appropriate funds – to Congress. The Court reasoned that the Spending Clause of the Constitution does not grant the Executive branch authority to add conditions to the disbursement of grants based on political priorities.  Through the WANTO Act, Congress requires the Department of Labor to award grants to, among other things, projects benefitting women. The Court found that, by expressly requiring agencies and departments to terminate all equity-related grants based on conditions that the Executive branch does not have authority to impose, Executive Order 14151 would likely run afoul of the WANTO Act and thereby violate the separation of powers established by the Constitution.

Judge Kennelly’s preliminary injunction largely keeps in place the restrictions imposed in his March 27, 2025 temporary restraining order, narrowing the scope only with respect to termination of grants under Executive Order 14151, pending the outcome of the case in which CWIT seeks permanent relief.

What Is Next?

The District Court in Illinois will next determine whether to issue a permanent injunction that could permanently extend the restrictions on the Department of Labor unless overturned or modified on appeal.  Judge Kennelly has requested that the parties confer and provide a proposed schedule for further proceedings by April 24, 2025. Hahn Loeser & Parks will continue to monitor this issue and provide updates as they become available. 

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he year 2025 is shaping up to be quite the challenging year for the construction industry.  From the President’s executive order nos. 14151 and 14174 (signed January 20 and 21, 2025, respectively) seeking to end DEI-related programs in federal contracts (including construction), to the tariffs that have been instituted on construction materials such as steel, aluminum, and lumber, uncertainty abounds for 2025. 

This article will discuss how project participants can better understand, account for, and allocate the risks associated with delays or cost increases that may result from these types of government actions.

The Three Most Common Types of Delay Provisions Found in Construction Contracts

Delays or price escalations are nothing new to the construction industry.  Indeed, it is commonplace for construction contracts to address how the risk of delays and added costs are to be allocated among the parties, and how any claims stemming therefrom are to be raised and resolved among the contracting parties.  Generally speaking, there are three types of contractual provisions that address delays.  They are:  (1) excusable, compensable delays; (2) excusable, non-compensable delays; and (3) non-excusable delays.

Excusable, compensable delays are delays that are not caused by the contractor, entitling them to both an adjustment of the contract’s time to perform and price.  A classic example of an excusable, compensable delay is an owner-directed design change.  Excusable, non-compensable delays are delays that entitle the contractor to an extension of the contract’s time to perform, but no corresponding adjustment to the contract price.  These types of delays are often addressed in the contract’s force majeure clause and are often caused by factors outside the control of any of the contracting parties.  Oftentimes (but not always), government actions that disrupt or delay construction projects are categorized as an excusable, non-compensable delay.  Finally, non-excusable delays are delays caused by or within the control of the contractor.  Because such delays are within the contractor’s control, the contractor is not entitled to an adjustment of the time to perform or the contract price.

Strategies for Dealing with the Current Governmental and Economic Climate

One need only watch the news for a few minutes to understand the constant state of flux concerning enforcement of executive orders and tariffs.  Indeed, as recently as March 14, 2025, a federal appellate court granted the government’s request to stay a nationwide preliminary injunction that blocked enforcement of certain parts of executive order nos. 14151 and 14173 – representing yet another twist in the battle to enforce (or render void) these orders.  It is expected that this landscape will continue to change over the next several months, and that additional tariffs may be imposed (whether on additional materials or in differing amounts; as of the writing of this article, imported steel and aluminum are subject to a 25 percent tariff, with no exceptions for large trading partners like Mexico or Canada).

The best way to address this uncertainty is to make certain how such delays (and any corresponding cost increases)—should they occur—will be treated by the project participants.  In other words, the parties need to address these issues up front in their contract.  And above all else, one rule reigns supreme for crafting forward-looking contract clauses like delay and cost escalation provisions:  clarity is king.  If it is the project owner, and not the contractor, who will bear the increased costs of materials due to tariffs, then the contract needs to clearly place that risk on the owner (or vice versa).  The same is true for delays (recall that last time tariffs were implemented, supply chain issues ensued as well):  will the contract price be adjusted to account for the delays or just the time to perform?  Allocating these risks upfront, using clear and unambiguous language, will ensure that these issues are handled promptly and cost-effectively, which will in turn help to keep projects on schedule (or to minimize the impact of delays).  But the clarity does not begin and end with the contract – contractors and subcontractors should be clear in their bids and proposals what assumptions they rely upon (such as tariffs remaining constant at 25 percent) or what is excluded from their bid.  Again, doing this will ensure that all project participants are aware of and in agreement with how the risk of government-caused delays and cost increases are allocated.  In these uncertain times, clear risk allocation in contracts becomes that much more critical as it will help to reduce uncertainty.

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On March 27, 2025, Judge Matthew Kennelly of the U.S. District Court for the Northern District of Illinois issued a temporary restraining order blocking the Department of Labor from enforcing certain provisions of Executive Orders 14173 and 14151, both of which limited or prohibited federal grants or programs relating to “illegal,” “unlawful,” and “immoral” diversity, equity, and inclusion (“DEI”). The plaintiff in the case, Chicago Women in Trades (“CWIT”), is a non-profit organization that prepares women to enter and remain in skilled trades and that receives federal funding from the Department of Labor. CWIT’s lawsuit challenged the DEI-related Executive Orders on various grounds, including that the Orders violate CWIT’s rights under the First and Fifth Amendments to the Constitution. CWIT requested a temporary restraining order preventing the enforcement of the Executive Orders and alleging that their enforcement would cause it irreparable harm. 

Judge Kennelly found that the provision of EO 14173 requiring federal contractors and grant recipients to certify that they do not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws,” likely violates the First Amendment of the U.S. Constitution and that its enforcement would cause irreparable harm to the plaintiff. Judge Kennelly’s ruling with respect to the certification provision of EO 14173 applies only to contracts and grants issued by the Department of Labor and not to all federal agencies. 

Additionally, the ruling restricts the Department of Labor from enforcing the provision of EO 14151 requiring agencies to terminate grants and contracts with agencies that promote DEI, but only with respect to CWIT and not to any other federal contractors or grantees.

What is Next?

The District Court in Illinois will next determine whether to issue a preliminary injunction which could extend the restrictions on the Department of Labor while the case is pending before the court.  A hearing will be held on April 10, 2025 on the preliminary injunction, and a ruling can be expected shortly thereafter. Less than two weeks ago in a similar case, the Fourth Circuit Court of Appeals granted the government’s request to stay a nationwide preliminary injunction that had blocked the same provisions of the Executive Orders allowing the government to enforce the Executive Orders while the appeal is pending. The government may file a similar request in the CWIT case. Hahn Loeser & Parks will continue to monitor this issue and provide updates as they become available.

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The Federal Government’s recent imposition of tariffs appears designed largely to bring manufacturing back inside the United States. News reports indicate the Government understands that tariffs may initially cause pain but accepts that trade-off to press investment in future growth of U.S. manufacturing. As such, there may be increased opportunities for construction companies who build manufacturing facilities. Contracts for manufacturing require special planning and thinking. Key provisions needed to consider include:

  • Confirming adequate funding exists to construct the facility. Often projects are started before all funding is in place. Funding for these projects is often a mix of manufacturer cash, lender funds, and government grants. In instances where projects are started before all funding is confirmed, projects can be broken into phases, with separate milestone dates triggered by funding confirmation on a phase-by-phase basis. This can reduce risk of non-payment to the contractor. However, for owners it risks new pricing with each phase, especially if there is a delay in obtaining financing.
  • Construction projects involving federal grants are now subject to new requirements governing “DEI” programs under Executive Order 14173. Beginning on April 21, contractors on projects receiving federal funding must certify that they do not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws.”  Failure to meet this certification requirement could result in liability under the False Claims Act. The Government has not yet published formal guidance on what constitutes unlawful “DEI” programs. However, informal guidance from the U.S. Equal Employment Opportunity Commission (EEOC) suggests that an employment action may be considered unlawful if it is “motivated—in whole or in part—by race, sex, or another protected characteristic.” Under this informal guidance, as an example, an apprentice or mentoring program that takes into account race or sex would be considered unlawful. Contractors are advised to consult with legal counsel to assist in evaluating whether any of their hiring practices might violate current laws prohibiting unlawful DEI programs. Moreover, contract provisions may require contractors to adhere to these strict limits.
  • Late completion of a project can sometimes expose contractors to liquidated damages. The amount of liquidated damages can account for costs the manufacturer may incur on additional financing interest, taxes, or even rent at an existing facility. But these liquidated damages should be proportional to the damage that the manufacturer might actually suffer.  As such, contractors should consider watching for manufacturer overreach on pricing the liquidated damages. The liquidated damages should not attempt to compensate the manufacturer for lost costs related to late start of manufacturing, lost sales, lost profits and the like. Contractors can insist on a fair liquidated damage amount as well as a waiver of consequential damages. After all, contractors are in the business of constructing buildings, and not the business of insuring against manufacturing losses.
  • When a contractor serves in the design-build capacity, the contractor may press the owner to provide a clear and well-defined program for the contractor to design around. Time spent up front defining and explicitly writing up the owner’s program will enable the contractor to achieve clear requirements and reduces disputes later on. Unclear goals are hard to achieve and lead to unnecessary claims and litigation.
  • Contracts should specify who carries risks associated with an uncertain and quickly-changing economic environment driven in part by political forces. Tariffs are currently being imposed and then removed or revised quickly, and it may take time for the markets to pressure the Government to make final decisions that manufacturers can rely on to make investment decisions. Because changes in the government’s policies and in the economic landscape will affect the cost, need, or future of a project, construction contracts should strongly consider addressing who carries the risk of those changes and their effects on the cost of a project. Contractors need to know they will be paid for the work, even if the project is suspended or no longer needed. Contractors also should not bear the risk of increased tariffs. Owners, conversely, will want the right to stop a project quickly should policies change that reduce the viability or need for the project.

Contract Details

When it comes to any contract, parties should consider how to negotiate and detail who owns the various risks and benefits. Clear contracts significantly reduce later disputes. Time spent up front is well invested to reduce the risk of disputes, extra costs, or other business issues.

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On March 14, 2025, The U.S. Court of Appeals for the Fourth Circuit granted the government’s request to stay a nationwide preliminary injunction that blocked enforcement of elements of President Trump’s Executive Order 14173 (signed January 21, 2025) ending DEI programs within federal grant and contract processes, and his similar Executive Order 14151 (signed January 20, 2025) ending the federal government’s DEI initiatives, programs, and equity-related grants or contracts (collectively, the “Executive Orders”). 

The February 21, 2025 nationwide preliminary injunction, entered by Judge Abelson of the U.S. District Court for the District of Maryland, blocked enforcement of multiple provisions of the Executive Orders relating to DEI programs. The three-judge panel of the Fourth Circuit unanimously granted the government’s request to stay the preliminary injunction. The panel found that the government had demonstrated a likelihood of success on the merits of its appeal, thus satisfying the requirements for a stay of the injunction. The effect of the stay is that the government will be able to enforce the Executive Orders without restriction while the appeal of the preliminary injunction is pending. 

Specifically, federal agencies may now do the following:

  • Require federal contractors and grantees to certify that they do not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws” and that they are in compliance with applicable Federal anti-discrimination laws. Federal contractors and grantees also must acknowledge that compliance is “material to the government’s payment decisions,” thus triggering potential liability under the False Claims Act for violating the certification requirement. Note, however, that EO 14173 allowed federal contractors to continue operating under the prior regulatory scheme for 90 days from the date of the Order (i.e., until April 21, 2025). At this point, it is unclear what the new rules will be for entities that bid on federal or federally funded contracts.
  • Develop a strategic enforcement plan, with the Attorney General’s assistance, to end illegal discrimination and preferences, including DEI, in the private sector. Agency strategic enforcement plans may lead to investigations of and enforcement actions against private sector organizations.
  • Terminate all “equity related” grants or contracts within 60 days as directed in EO 14151.

WHAT IS NEXT?

Federal contractors should expect updates from the Office of Federal Contract Compliance Programs (OFCCP) regarding compliance with EO 14173 as the 90-day deadline approaches. The Fourth Circuit has ordered an expedited briefing schedule for the full appeal of the preliminary injunction, with the government’s opening brief due on April 8, 2025, and the Plaintiffs’ response brief due on May 8, 2025. The appeals process will likely take several months, and the Court is unlikely to issue an opinion before early summer 2025. In the meantime, federal contractors and grantees should be prepared to comply with direction from the OFCCP as it comes out. Hahn Loeser & Parks will continue to monitor this issue and provide updates as they become available.

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Background

On January 21, 2025, President Trump signed Executive Order 14173 titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”). As was noted in our February 10, 2025, article, the Order amounted to an initial step by the Trump administration to end diversity, equity, and inclusion (“DEI”) as well as diversity, equity, inclusion, and accessibility (“DEIA”) in federal contracting.

In the aftermath of the Order being signed, government contractors and recipients of federal grants faced multiple questions, the most important of which was how the Order will affect the current contract grant allocation processes and what actions contractors and grant recipients must now take to follow this new regulatory framework. The answer, at the time, was not immediately clear.

Recent Developments

On February 3, 2025, a lawsuit was filed in the United States District Court of Maryland challenging the legality of the Order.  The lawsuit, filed by a group of plaintiffs led by the National Association of Diversity Officers in Higher Education (the “Plaintiffs”), challenged the Order as being unconstitutional in certain aspects. The Plaintiffs sought an injunction to prevent the Order from going into effect.

On February 21, 2025, Judge Adam Abelson partially granted the Plaintiffs’ request for a preliminary injunction for two reasons:

  • First, Judge Abelson found that the Plaintiffs were likely to succeed on the merits of their claim that the Order is unconstitutionally vague in violation of the Fifth Amendment.  Specifically, the operative terms used in the Order including “DEI,” “equity-related,” “promoting DEI,” “illegal DEI,” “illegal DEI and DEIA policies,” and “illegal discrimination or preferences” were not sufficiently defined.  Without sufficient definitions of these essential terms, contractors and grant recipients were left to guess what types of “DEI programs or principles” the Trump administration considers “illegal” and is seeking to “deter.” Because of this, the Court found that the Order was too vague and that challenges to the Order were likely to succeed.
  • Second, Judge Abelson found that the Plaintiffs were likely to succeed on the merits of their claim that the Order violates the First Amendment. A significant portion of his analysis rested on the certification provision of the Order that would require contractors and grant recipients to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Judge Abelson observed that “the express language of the Certification Provision demands that federal contractors and grantees essentially certify that there is no ‘DEI’… in any aspect of their functioning, regardless of whether the DEI-related activities occur outside the scope of the federal funding.”

The effect of the breadth of this wording is that the prohibition on DEI could affect other parts of a contractor or grant recipients’ business that are entirely unrelated to the contract or grant award. For instance, if a contractor’s website states that it values diversity, equity, and inclusion in its business and hiring practices, even if those principles are not applied to bidding on a federal contract, that website statement could run afoul of the Order and the certification provision. And faced with the threat of potential perjury charges or prosecution under the False Claims Act, federal contractors and grant recipients have little choice but to apply an overinclusive definition of the ill-defined terms in order to avoid risking liability. Because the Order reaches beyond conduct associated with federal contracts and awards, and in fact could penalize contractors and grant recipients for actions that are entirely separate and unrelated from the contract and award, Judge Abelson found that the Order likely amounted to content discrimination in violation of the First Amendment and therefore the Plaintiffs were likely to succeed in their challenge of the Order.

Because Judge Abelson found that the constitutional challenges raised by Plaintiffs would also apply to all contractors and grantees, the scope of the injunction applies to anyone seeking a government contract or grant and not just the Plaintiffs in the case.

What is Next?

Judge Abelson’s injunction, although informative of the grounds on which the Order might ultimately be ruled unenforceable, does not automatically resolve the uncertainty faced by federal contractors. On March 4, 2025, the government sought to stay the injunction pending its appeal of the Court’s injunction. The outcome of the appeal may not be known for several months.  Additionally, the Trump administration may redraft the Order to provide more clarity to the undefined terms in an attempt to address the First Amendment and Fifth Amendment concerns identified by Judge Abelson. Ultimately, the Order may remain in place, whether in its current form or in a modified form.

What this means in the long run is that federal contractors and grant recipients will need to continue to be vigilant and monitor the changing legal framework to ensure they are compliant with any new changes that may develop. As new developments unfold, Hahn Loeser & Parks will continue to monitor this issue and provide further relevant updates as they become available.

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Artificial Intelligence will impact construction in ways that are both predictable and unexpected.  Similar to technologies such as Building Information Modeling (BIM) and GPS, the use of AI hopes to make construction safer, less prone to error, find issues earlier, and reduce delay and costs.  However, AI (like a human) is only as good as the team that trained the AI and is subject to “hallucinations.”  Project parties must consider the allocation of risks related to AI in the contract documents, insurance, and how AI issues will be dealt with in disputes. 

Future uses of AI in the construction work field may include:

  • Worker safety glasses integrated with real time cameras, microphones, sensors, and displays.  The cameras/sensors may confirm the correct selection, location, and installation of materials, fasteners, and sealants; monitor project conditions and warn of unsafe conditions; review moisture, heat, and other environmental conditions impacts on in-process work; monitor OSHA and safety issues; and create an overall worker-by-worker record of project progress.  Voice recording can also be integrated into the creation of daily construction records.  It’s possible that every word spoken on a project is recorded…
  • Dirt moving equipment can be set to install via AI, GPS, and intra-equipment communications, permitting a single operator to coordinate multiple pieces of machinery.  While humans will be necessary to deal with problems or unexpected conditions, work can otherwise progress in an efficient and coordinated manner as determined in part by the AI. The AI may have been part of the initial bid estimate (reviewing project plans), and then used to perform the work. 

In the present, if a worker was negligent in their installation of project materials or grading of materials, and that caused delay or damage, then contract indemnification and insurance provisions are in place to allocate that risk.  But what if AI caused the problem?  If AI directed the installation of a sealant or fitting in the wrong place, graded the wrong slope, or create an as-built that was inaccurate.  What if the owner required the contractor to use a certain AI?  Who is responsible: the company using the AI, the operator of the AI enabled machine, or the software creator of the AI?  More critical, can insurance be obtained to ensure against this risk? 

Risks exist as well in the design side of development.  Surely, AI will free architects from initial mundane drafting tasks, permitting them to dream the project and then the AI does the initial design of the project/structure, systems, and operating.  A second AI may check the first AI’s work.  AI can be trained to look at cost of materials, constructability, availability of materials, energy efficiency, and other factors and create a design that works for the project budget.  While a licensed human will likely always be required to stamp any AI created drawings, it may be hard for that human to find AI errors.  What is the standard of care when AI is involved?  Will the standard of care increase with the use if AI?  Will review by AI become a standard design step to capture issues early on? 

When there is a problem and arbitration or litigation is required, and AI is alleged to be at fault, that may further complicate any hearing.  Discovery on the AI’s use will be necessary, and likely an AI expert involved on:

  • How the AI was trained.  Was the AI given correct information?  As industry standards increase and change, was that AI updated?
  • Was the AI’s training biased?  Will manufacturer provided AIs be able to work with competitor products?
  • Was the AI used correctly?  Did the operator understand and properly use the AI enabled tool?  Are there records of training and use of the AI?  Did the operator blindly rely on the AI, or did the operator critically think about what the AI was telling the operator to do? 

Additionally, parties must consider if the AI provider can be joined as a party in any dispute where AI was at fault.  Few people today read their software licensing contracts, but they often contain strict notice requirements, limits on liability, disclaimer of warranties, and inconvenient venue provisions.  The introduction of AI issues into any dispute may make that dispute more complicated and expensive.  Conversely, if AI is monitoring project conditions in real time, abundant evidence will exist to demonstrate exactly what occurred, what was said, and provide audio and video testimony for any hearing. 

AI is inevitable, so its use on construction projects needs to be carefully considered.  Users need to understand the contract limits of AI, think through its risks, and then endeavor for contracts to allocate those risks.  Users also need to review applicable insurance to confirm coverage in the event of an AI related occurrence. 

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Recent actions by the federal government have called into question the use of measures intended to foster diversity, equity, and inclusion (“DEI”) on federal construction projects or projects receiving federal funding.  On January 21, 2025, President Trump signed Executive Order 14173 (the “Order”) revoking Executive Order 11246 signed by President Johnson in 1965.  The revoked Executive Order 11246 mandated equal employment opportunities for federal employees and federal contractors. On January 24, 2025, the Acting United States Secretary of Labor, Vincent Micone, issued Order 03-2025 directing the Office of Federal Contract Compliance Programs (“OFCCP”) to “immediately cease and desist all investigative and enforcement activity under the rescinded Executive Order 11246… and regulations promulgated under it.”

What Does President Trump’s Executive Order Say?

Section 1 of the Order provides a brief explanation for the basis for the Order.  After reaffirming the United States’ commitment to protect the civil rights of individual Americans from discrimination based on race, color, religion, sex, or national origin, it then proceeds to characterize DEI and Diversity, Equity, Inclusion, and Accessibility (“DEIA”) policies as “dangerous, demeaning, and immoral race- and sex-based preferences” while further asserting that such policies “violate the text and spirit of our longstanding Federal civil-rights laws” while undermining “national unity, as they deny, discredit, and undermine the traditional American values of hard work, excellence, and individual achievement.”

Section 3(b)(ii) of the Order directs the OFCCP to immediately cease “[p]romoting ‘diversity,’” “[h]olding Federal contractors and subcontractors responsible for taking ‘affirmative action’,” and “[a]llowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.”

Section 3(b)(iv) of the Order further directs the heads of each government agency to include language in every contract or grant award by which the party signing the contract or receiving the grant attests that they are in compliance with all federal anti-discrimination laws and to affirm that they do not operate any “programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

The Order specifically notes that it does not apply to employment or contracting preferences for veterans or to persons protected by the Randolph-Sheppard Act, which provides persons with blindness with remunerative employment and self-support through the operation of vending facilities on federal and other property.

How Does the Order Affect Federally-Funded Projects?

The short answer is that it is not yet clear how the Order affects projects that are funded in whole or in part by federal funds. This lack of clarity stems in part from ambiguities in the Order itself:

  • The Order requires the OFCCP to immediately cease promoting “diversity.”  But the Order puts the term “diversity” in quotation marks, suggesting that the term is undefined but may remain subject to interpretation by the OFCCP.
  • The Order repeatedly uses the phrase “Federal contractors and subcontractors,” but those terms are not defined. Do they mean only contractors and subcontractors working on federal projects?  Do they include contractors and subcontractors working on state- or local-level projects that are funded only in part by federal funding or grants? 
  • The Order requires grant language to include provisions mandating that grant recipients attest that they do not operate programs “promoting DEI that violate any applicable Federal anti-discrimination laws.”  It is unclear which, if any, federal anti-discrimination laws are implicated by the use of DEI or disadvantaged business enterprise (“DBE”) requirements. 
  • The Order requires all executive departments and agencies to terminate all “discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements.” But, due in part to the changing legal landscape regarding affirmative action, it is unclear what constitutes “illegal” DEI efforts. For instance, if a municipality, or state Department of Transportation, or local transit authority utilizes DBE goals or requirements in awarding contracts, will it now be prohibited from doing so if their projects receive any federal funding?
  • In the short term, the Order permits federal contractors to continue operating under the prior regulatory scheme for 90 days from the date of the Order. Following those 90 days, however, it is unclear what the new rules will be for entities that bid on federal or federally funded contracts. If a public entity’s request for proposals (RFP) was issued before the Executive Order was issued, but the awarded contract is entered into after the 90-day period, will the contract be subject to the new rules?  If an RFP is issued during the 90-day period, but the awarded contract is not executed until after the 90-day period, will the contract be subject to the new rules?  

Until further guidelines and clarity are provided by OFCCP, these questions remain unanswered.

Going Forward:

The Order contains several ambiguities that will hopefully be resolved by further guidance from appropriate authorities or interpretation by the courts. 

It is also possible that the Order will be affected by legal action. On February 3, 2025, a group of plaintiffs including the National Association of Diversity Officers in Higher Education, the American Association of University Professors, the Restaurant Opportunities Centers United, and the Mayor and City Council of Baltimore, Maryland filed an action in the United States District Court of Maryland arguing that the Order illegally encroaches on the powers of Congress and impermissibly engages in viewpoint discrimination in violation of the First Amendment. Other lawsuits are likely. Hahn Loeser & Parks will continue to monitor this issue and provide further relevant updates as they become available.

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President Trump’s prospective assessment of 25% tariffs on certain materials coming from Canada and Mexico, and prospective 10% tariffs on certain material from China, may increase contractor costs in fulfillment of construction contracts. While the details of which materials are tariffed will be clarified in the coming days, impacts on project costs may be substantial. Who is responsible to pay or absorb these costs?

Project participants should consider promptly reviewing the contract regarding liability for tax increases.  Additionally, contractors should consider reviewing the source of all materials, included those from outside the United States. Prudent contractors will immediately determine where tariffs may increase costs and the availability of substitute American made products. To the extent contractors believe they are entitled to pass these costs to customers, then extra costs/claim notice requirements must be promptly triggered.

Proactive contractors and owners will review the cost impact together to determine and confirm:
1) If the contractor has the ability to continue and absorb any additional costs that fall on the contractor, (or does the financial impact materially prevent the contractor from completing the work)
2) If costs are passed to the owner, for the owner to determine whether the project is still viable and cash flows (you cannot raise rent simply because the materials cost more to obtain), and
3) If adjustment in project schedule or suspension is possible to see if the tariffs will remain long term or be adjusted as political negotiations move forward.

Further, proactive contractors will also want to connect with their subcontractors and vendors to assess the impact of the tariffs. In particular, equipment vendors will be impacted directly and immediately, so it will be wise to determine how they plan to handle the tariffs.

Tariffs on foreign goods will likely increase the value of American made products. It may also spur more American manufacturing, but that takes time before product is available in the domestic market. Conversely, the tariffs may decrease the underlying cost of the foreign made goods, so that when the tariff is placed on it, it matches the price of the American made materials. 

What is clear is that project participants at all levels should be ready to have their hands around the quickly changing material and price landscape and share information in real time to permit all parties to review the impact of price increases on the project, and the ability or desire of parties to perform. Parties contracting now for new projects and improvements should consider evaluating if their proposed contract addresses substantial cost revisions, increased costs of construction materials, further unpredictable tariffs and tax revisions, and the potential of the project to withstand increased inflation.

Updates Expected

Hahn Loeser’s Construction team stands ready to assist any client in reviewing the impact of tariffs on a current project, negotiation of any contract, provide notice to an owner or contractor on future performance/payment, and escalation of claims.

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Prefabrication is nothing new to the construction industry.  And, over the past several years, we have seen a rather significant increase in the utilization of prefabrication.  With this increase, however, it has revealed some vulnerabilities that, if not properly managed, lead to undesirable results.  Let us take a closer look…

Prefabrication is the assembly of buildings or their components at a location other than the building site.  Some contributing factors that have gained favorable recognition of prefabrication in construction projects stem from factors such as Covid, market variability, and labor shortages. The key benefits of assembling various building components in a factory-like setting include:

  • Improved quality and consistency
  • Improved labor efficiency and production
  • Improved schedule flexibility and enhancements
  • Reduced material waste and lost time incidents
  • Reduced on-site installation labor
  • Favorable cost benefits and effectiveness

For these many reasons, the construction industry is finding more and more ways to embrace prefabrication as a normal practice and apply it more broadly across the various building systems. So, the focus we look to elaborate on is managing the process and having the necessary and applicable controls in place to execute the work.

The process, or also commonly referred to as the method, of prefabrication drives early coordination into projects. This naturally creates a conduit for increased communication in preplanning efforts and promotes early engagement amongst the team. As we are all aware, project success starts day one; so, having a process, or method, in place that recognizes the value of early communication is a significant benefit to steering a project towards success. But let us dive a bit into implementation.  

In numerous instances, we are finding a vital step in the preplanning effort may not be in full consideration at the very early stages of a project. Utilizing prefabrication in a broad sense may be lacking consideration of governance and control of the prefabricated system itself. Many projects rely on building component specific project specifications and design, such as manufacturer data, performance criteria, tolerance, execution, etc. But assembly of multiple building components before reaching the building site has added layers of consideration that may not be completely apparent until the system is being installed. Of considerable concern, in many cases, is cumulative tolerance.

Cumulative tolerance, also known as tolerance stack-up, is the effect of all individual building component tolerances as part of a system or assembly. In traditional design and construction of various building systems, manufacturer tolerances and field installation tolerances are generally accounted for and occur component by component.  This provides flexibility for aesthetics, such as lining up vertical and horizontal joints, while constructing a system that functionally performs. Introducing prefabrication into a design that relies on these numerous component-by-component tolerances can create significant issues.

For instance, five curtainwall units installed in the field have six total joints with plus/minus tolerance flexibility.  Those same five curtainwall units prefabricated as one five-unit segment now have four joints assembled in a factory that can maintain zero tolerance and leaves two joints in the field to potentially account for the cumulative tolerance of the components making up that portion of the system. This, in turn, leads to oversized and/or inconsistent field joints and the potential of performance issues at concentrated locations.

Establishing governance and control for the prefabricated system itself needs to be identified early in the process by working collectively with all members of the project team, including owners, designers, contractors and manufacturers.  Consideration of items such as manufacturing parameters of individual components, prefabrication assembly requirements, onsite preparation, sequence of installation and execution, local building code requirements, performance functionality, and aesthetics, is critical.  The unique perspectives of each team member and evaluation of individual components making up a prefabricated system will help to establish a clear set of boundaries to achieve a seamless final installation. 

So, as we continue to recognize the many advantages of prefabrication and its broadening role in the construction industry, it is imperative to manage the process and have the necessary and applicable controls in place to execute the work.  With implementation of a collaborative approach and early recognition of the importance of managing the prefabrication process, issues such as cumulative tolerance can be vetted to minimize and avoid undesirable results.