Despite the confusion and disorder that has descended on the design industry in the wake of recent tariff news, the current 90-day postponement on most of the new import taxes has afforded a temporary reprieve from some of the biggest anticipated swings in product pricing. Even so, a 10 percent tax on all imports—and a triple-digit levy on Chinese goods—is already in effect, and the costs are starting to make their way into designers’ invoices.

As vendors and importers ready themselves for a new trade landscape, many designers are doing the same, reexamining their contracts to better protect their firms from delays, price hikes and other hurdles that may follow future tariff hikes. BOH consulted legal experts and design professionals on how the right contract can help safeguard a design firm from the impact of tariffs.

ANTICIPATE THE UNKNOWN
The good news is that many standard designer contracts may already have clauses in place that can protect a firm from some of the impact of the new tariffs. After experiencing supply chain issues during the pandemic, some designers added a provision stipulating that they are not responsible for delays beyond their control—part of the “force majeure” clause, which accounts for unforeseen external circumstances like a natural disaster. According to attorney Wendy Estela, who specializes in design businesses, this clause usually covers governmental actions (which includes tariff policy). “You could specifically write in delays caused by tariffs if you want, but most are covered,” she says.

In a practice that predates the new trade policies, attorney Seth Kaplowitz, who specializes in design firms, ensures that his clients’ contracts state that tariffs and duties associated with approved purchases are the sole responsibility of the client. This checks out if you are importing a finished good from abroad—in that case, a tariff is billed as a line item on a product invoice, and a fee could already be covered in your contract as a reimbursement expense, similar to any other tax.

Still, both lawyers agree that the onus falls on designers to have discussions with clients about how these clauses could be applied to the current market—importantly, before disruptions occur, rather than unexpectedly sending them large bills and inviting conflict. “You don’t want to just rely on your contract to protect you as a shield,” says Estela. “You want to be proactive, so that you’re the one telling the client how the contract works.”

Additionally, Kaplowitz suggests getting ahead of the unknowns by identifying which imported items are currently in transit, when they are expected to reach the U.S., and what the potential cost increases will be—then providing clients with sources to back up all the information you’ve gathered. “We encourage designers to reach out to their freight-forwarding services or customs agents and get definitive information on when the goods will land, what the expected tariff will be on that date, and what the final numbers will be,” he says. “Provide this documentation to clients and be transparent about the new costs.”

TRY A PERCENTAGE-BASED PRICING POLICY
In cases where tariffs are not a line-item expense, the situation is trickier. Import taxes on components may cause manufacturers to raise prices—in that case, designers are likely to see price adjustments on certain goods or across-the-board increases on a vendor’s offerings. Either way, there’s no line item that singles out tariff-related surcharges on the invoice. “Regardless of whether your firm imports furniture from overseas, it’s highly likely that your domestic vendors do,” says Kaplowitz. “The price increases will be felt domestically even if you are not the importer of the goods, so prepare to address these changes with your clients.”

Business management software provider Studio Designer is launching a campaign geared toward helping designers address this tariff-related pricing variability in their contracts. One of their key directives: Update your terms of service.

“The language we are suggesting essentially notes that there is uncertainty in tariffs and that the prices of products are subject to change,” says Studio Designer content marketing manager Aleksia Silverman. “[It] then suggests that if there is a price variance greater than 10 percent from the originally agreed-upon amount, the designer will notify the client, and the client can have the option to proceed with the order or instruct the designer to reselect and propose a new, lower-priced item.”

Some firms have already moved to issue such statements in their client documentation. Chicago-based firm Tom Stringer Design Partners, for example, has adopted a policy to facilitate reselection if a client objects to a price fluctuation of more than 10 percent, which is now included in a new disclaimer attached to all proposals sent to clients. (In their case, the firm’s time to make new selections is still billed hourly, but for the firm’s markup-related fees, any price increases issued between the time proposed and the time ordered will not be billed to the client.)

TIGHTEN UP QUOTE EXPIRATION TIMES
Other designers are taking a slightly looser approach, focusing instead on adapting their policies around pricing expiration on proposals. Many are finding that quotes for FF&E are only valid for a few days—either because manufacturers are guaranteeing designers’ pricing if they submit orders before a certain date, or because vendors may announce price hikes at any time. Though it’s typical for a designer’s contract to specify a window that pricing is valid for, in the new economic climate, Estela says that limiting your guarantee to as little as 48 hours may now be more appropriate.

In some cases, a contract change goes hand in hand with an adjustment in a designer’s project process. Los Angeles designer Jessica Nicastro, for example, has changed her contracts to note that prices are subject to change and that the business is not liable for pricing changes due to the current economic climate. She also removed a detail from her contract guaranteeing quotes are good for 30 days, a move prompted by a flurry of emails from vendors saying they can’t provide guarantees beyond five days. As she communicates these changes, she’s encouraging her clients to waste no time in making design decisions while the prices she presents are still viable.

“Everybody knows what’s going on in the world, so [we’re] just being transparent [by saying] we’re only as good as the prices that our vendors get,” she explains. “We are urging our clients to purchase as soon as possible to lock in a price.”

The strategy is similar for Glencoe, Illinois–based Andrea Goldman Design, which is now giving clients a 10-day deadline to approve an order. “I think what we’re going to have to do is less redefine our contract, and more reinforce,” says Maize Jacobs-Brichford, the firm’s design director. “We will need to make sure that our clients understand that when we get a quote from a vendor, they are obligated to hold to that quote [only for a short period].”

ADJUST YOUR POLICIES TO COVER YOUR RISK
The mere news of tariffs may cause cold feet in some clients mid-project. Tightening up one small clause in a contract could help protect against a client pulling out too late in the game. While most designer contracts specify that once an order is placed, it cannot be canceled or returned, some also include a caveat noting that some manufacturers may accept returns or canceled orders, and that the designer will pursue this route if needed. Estela warns against such addendums in contracts during times of market uncertainty—she advises designers to grant such offers on an exception basis but never in writing.

“The general rule, in my opinion, should always be: There are no returns, and orders are not cancelable after [they are] placed,” says Estela. “If you get a client that is really nervous right now about everything, they might call you up and say, ‘I want to cancel all these orders.’ And you do not want to spend hours trying to get an order canceled—especially [designers] who are not charging for their time hourly for that phase, because it’s a huge risk financially for the firm.”

Estela suspects designers are likely going to spend more time on procurement-related tasks like researching, sourcing and repricing items regardless. “If your contract is heavily based on making money on product, you should be looking at starting to make money on the hourly fees associated with ordering and procurement, because that’s now one of the riskier parts of a contract in general,” she says.

Another pricing strategy that leaves designers particularly vulnerable in the current landscape: charging a flat rate for an entire project. “A flat rate is good and controllable for the design phase, but after that, it’s very hard because there are all these variables that change,” Estela explains. “If you end up with one supplier that goes out of business due to tariffs, you could be spending a lot of time trying to scramble to replace that vendor. If you’re not charging execution hours for procurement or purchasing time, you’re going to lose. It’s very hard to change things midstream, but you can certainly make the change for projects starting now and going forward.”

The design community’s having survived through crises of the not-too-distant past provides a blueprint for back-end strategies to fortify a design firm ahead of the coming trade policy changes—taking steps like double-checking insurance to see what coverage is available in case vendors shut down, for example, or asking banks about chargeback policies.

“There are always new threats to the industry, so I think the only thing we can do is communicate with our clients,” says Jacobs-Brichford. “Make sure they understand the contract, and make sure they understand that in an evolving market, we will have to be able to ride the waves, essentially—and understand that timing will be ever more important.”