February 23, 2026|Client Alerts
By Kendall E. Woods
On Friday, February 20, 2026, in Learning Resources, Inc. v. Trump, the U.S. Supreme Court in a 6-3 decision held that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs. The majority of the Court concluded that tariffs are a form of taxation reserved to Congress under Article I of the Constitution and that IEEPA’s general authorization to “regulate … importation” does not confer tariff-setting authority to the Executive.
The decision invalidates the IEEPA tariffs imposed by the President, including the reciprocal duties imposed on Liberation Day in April 2025, as well as the Presidents’ separate IEEPA-based tariffs on Canada, Mexico, and China, and significantly constrains the President’s ability to use emergency powers to reshape U.S. trade policy absent explicit congressional authorization. While the opinion has broad implications for separation of powers, limits on emergency authority, and constitutional structure, the more immediate question is practical: what does this mean for the construction industry?
Key Takeaway
Tariffs are not going away. SCOTUS did not say that tariffs themselves are unlawful – the Court held only that the tariffs imposed by the administration under the IEEPA were invalid. With its immediate response, the President confirmed that tariffs are here to stay (for now) by imposing new tariffs under a different statute. Volatility and uncertainty in tariff policy therefore remain, and it is more important than ever that construction contracts clearly allocate tariff-related cost risk.
How Does the SCOTUS Decision – and the Administration’s Response – Affect Developers, Contractors, Subcontractors, and Suppliers?
For much of the past year, tariff risk planning focused on the administration’s use of IEEPA, under which tariffs were threatened, imposed, increased, reduced, and modified with little notice. Construction counsel drafted contract provisions aimed primarily to protect against upward tariff escalation, on the general assumption that the administration would continue to use the IEEPA to implement and increase tariffs resulting in increased project costs.
Immediate Shift to the Trade Act of 1974
Within hours of the Supreme Court’s ruling, the administration imposed a 10% tariff – raised the following day to 15% – under Section 122 of the Trade Act of 1974 (Trade Act), with an effective date of February 24, 2026.
The Trade Act is a narrowly targeted statute with a short-term duration of 150 days designed to provide rapid relief from international payments crises. The Trade Act was not designed – and historically has not been used – as a general trade‑policy tool. Whether tariffs imposed under Section 122 will withstand legal challenge remains an open question. In addition, certain categories of goods are potentially exempt from tariffs under the Trade Act including critical minerals, energy, pharmaceuticals, and goods under Section 232. Construction materials such as steel, aluminum, and cement are not exempt. Even apart from constitutional and exemption issues, the strict time-limit in the Trade Act itself introduces additional uncertainty and instability into tariff-risk planning.
Contractual and Cost-Recovery Implications
The rapid sequence of events following the SCOTUS decision underscores the continued volatility of tariff policy. The ruling – and the administration response – reinforce the need for strong, forward-looking contractual language to protect against tariff-cost risk. These recent events highlight the need for contracts and change orders to account not only for increases due to tariffs but also for decreases and the mechanisms for securing potential refunds.
Contracts should explicitly address:
- Clearly allocate tariff risk;
- Address refund ownership;
- Define each party’s obligation to pursue and cooperate in refund efforts; and
- Implement documentation and cost-segregation requirements for costs attributable to tariffs.
Refund Considerations for IEEPA Tariffs
Stakeholders should evaluate whether they are due any refunds based on amounts paid under the now-invalid IEEPA tariffs. To that end, parties should evaluate all projects that had any tariff-related increases involving:
- GMP increases;
- Use of allowance or contingency funds to cover tariff-cost increases; or
- Supplier increases attributable to IEEPA tariffs.
Current estimates indicate that as much as $175 billion could be at issue for IEEPA refunds. The President has already indicated that the administration will not voluntarily process tariff refunds and litigation over tariff refunds could take years – so the path to recovery will be challenging. Depending on the language in your contracts, disputes might arise over who is entitled to any refunds and who bears the responsibility for pursing them.
Practical Considerations for Stakeholders
Review Contracts
Ensure your construction contracts account for political and trade instability, including both increases and decreases in tariff-related costs.
Review Projects
Identify projects impacted by IEEPA-based tariff cost increases. Confirm the project documentation clearly ties cost impacts to IEEPA tariffs.
Evaluate Refund Strategy
Evaluate your contract provisions regarding allocation of risk and responsibility for IEEPA tariffs. Determine whether refund claims are viable, including any response by the U.S. Court of International Trade (CIT) regarding IEEPA tariffs.
Re-Evaluate Pending Claims:
Assess existing project claims in light of the SCOTUS ruling.
Please contact us if you have any questions about your construction contracts or procedures to seek refunds.
Buchalter’s Construction Industry Group is comprised of attorneys who counsel construction industry participants on risk management, contract strategy, and dispute resolution throughout the United States and internationally. By offering every angle of construction law, the group combines deep industry knowledge with litigation and arbitration experience to address issues efficiently and strategically. We help clients anticipate problems early and resolve them effectively when disputes arise.
This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.
