Building for Reshoring Success: Construction Contracts That Keep Manufacturing Projects on Track
Key Takeaways:
- Align project delivery model with business priorities: Choosing the right project delivery structure (Design-Bid-Build, CM@R, Design-Build, or EPC) is critical to balancing cost, speed, design control, and risk management in reshoring projects.
- Select pricing to match project goals: Fixed Price, Cost Plus, and GMP contracts each shift risk differently; manufacturers must weigh cost certainty against flexibility to avoid costly surprises.
- Plan for volatility and disruption: Contracts should proactively address material price escalation, tariffs, procurement timing, and force majeure events to safeguard budgets and schedules in today’s unpredictable environment.
Manufacturers reshoring or expanding in the U.S. often devote the bulk of early planning to where to locate – analyzing workforce markets, incentive packages and transportation links. But once the site is selected, an equally decisive factor comes into play: how the facility will be designed and built. In today’s climate of volatile material costs, unpredictable supply chains and evolving market demands, the construction phase is one of the most risky and challenging elements of the reshoring process. Every decision, from project delivery structure to pricing model, will determine whether the facility comes online on time, on budget and ready to serve for decades. Treating construction contracting as a strategic business function, rather than a routine procurement exercise, is essential to protecting and maximizing the return on your investment.
1. Think Ahead: Match Delivery Model to Business Goals
An early and fundamental decision is selecting the right project delivery model – the framework that dictates who designs the facility, who builds it and when those roles overlap. This choice can have dramatic consequences for cost control, schedule certainty and risk allocation.
Under the traditional design‑bid‑build model, the manufacturer hires a design team to produce complete plans, then competitively bids the work to contractors. This approach can yield competitive pricing, but the sequential process often stretches the schedule and creates fertile ground for change orders if the design needs to shift to meet evolving operational needs.
Another option, construction manager at risk (CM@R), brings the builder in early during the design process to provide constructability reviews, budgeting and scheduling input before constructing the project. This approach can strike a balance between price certainty and design flexibility.
By contrast, the design‑build model engages a single entity for both design and construction, fostering collaboration and often compressing schedules. That speed can be invaluable in a reshoring race, but it requires the manufacturer to clearly define performance and quality standards up front to avoid surprises or misalignment later in the process.
For process‑intensive facilities, an engineer‑procure‑construct (EPC) structure consolidates design, procurement and construction responsibilities under one roof. The contractor delivers a turnkey facility, taking on significant performance risk, but this concentrated responsibility may come at a higher starting price and with less direct control over design details.
There is no universal “best” delivery model. The right choice depends on whether speed, cost certainty, design control or risk transfer is your top priority. Too often, manufacturers default to the model they used last time, rather than selecting the one that truly matches their reshoring objectives – a decision that can prove costly later.
2. Price It Right: Choosing the Model That Fits Your Risk Tolerance
Once the delivery model is set, the construction contract becomes the manufacturer’s primary tool for allocating risk, preserving schedule and containing costs. In any construction market – but especially one defined by material volatility and labor constraints – the way you structure pricing will dictate much of your financial exposure.
Under a Fixed‑Price (Lump Sum) contract, the contractor agrees to deliver the project for a set price based on a clearly defined scope. This provides strong budget certainty, but only if the scope is fully documented and stable. In the current market, where design changes may be needed to accommodate rapidly evolving production requirements or unanticipated site conditions, that certainty can quickly erode through change orders. Fixed‑Price agreements place the risk of cost overruns squarely on the contractor, which they may hedge by building premiums into their bid.
A Cost‑Plus model reimburses the contractor for actual labor, materials and other allowable project costs, plus a fee or percentage for overhead and profit. This arrangement can be attractive when the design is incomplete, the scope is evolving or the manufacturer wants greater flexibility to make changes mid‑construction. However, it provides minimal cost certainty and requires strong auditing rights and disciplined project management to prevent cost overruns which can quick balloon without such protections in place. While the owner retains more control over design and changes, they also assume nearly all of the financial risk.
Many manufacturers find the middle ground in Cost‑Plus with a Guaranteed Maximum Price (GMP). Here, the contractor is reimbursed for actual costs plus a fee, up to a capped “maximum” amount. Beyond that cap, the contractor absorbs additional costs. This model offers flexibility for changes in scope and design, while establishing a ceiling on cost exposure. GMPs often include allowances and contingencies, so contracts must tightly define how these can be used and who retains any savings. In volatile markets, GMP agreements can balance adaptability with budget discipline, particularly when paired with escalation clauses that fairly address market‑driven price spikes.
The choice among these models should be deliberate and directly tied to the manufacturer’s priorities. If your project demands an unmovable budget, Fixed‑Price may be worth the upfront premium. If adaptability during construction is vital, Cost‑Plus may be the best option, provided it is coupled with strong cost controls and stringent owner oversight. And if you need both flexibility and a cap on exposure, Cost‑Plus with GMP often offers the best compromise.
3. Plan for the Unplanned: Managing Volatility, Tariffs, and Integration Risks
Even with the right delivery and pricing model, today’s market requires contracts that anticipate volatility. One approach to address material pricing volatility is to agree upon an approach to price escalation in the contract before such issues arise as the project progresses. Such clauses may provide relief to the contractor for cost increases that exceed an agreed‑upon threshold and could not reasonably have been anticipated at the time the contract was signed. The contractor should be required to substantiate any claim with detailed evidence of the original committed price and the actual cost increase. This ensures relief is granted only for exceptional, documented changes and not routine fluctuations.
The same principle applies to tariffs. Even when production is in the U.S., critical materials or equipment may come from abroad. A well‑drafted tariff clause should allow adjustments only for new or significantly increased tariffs imposed after execution and should bar recovery for tariffs that were known or reasonably foreseeable. As with escalation, the contractor must demonstrate both that the tariff applies to the project’s materials and the extent of its direct cost impact.
Material procurement strategies should also be carefully considered. Specialized materials and equipment frequently have long lead times for delivery, making early procurement provisions essential. Contracts should clearly address title transfer, risk of loss, insurance obligations and storage responsibility to avoid disputes.
Finally, force majeure clauses should be updated to reflect modern realities, including supply chain disruptions, extreme weather events and public health emergencies, rather than relying on boilerplate provisions from more stable times.
The Right Construction Contract Builds Stronger Reshoring Success
Reshoring success isn’t simply about breaking ground quickly; it’s about delivering a facility that launches on schedule, on budget, and with the flexibility to grow. Achieving that outcome depends on aligning your project delivery method with your business priorities, selecting pricing structures that match your risk tolerance and building contract terms that anticipate volatility while hardwiring adaptability into the design.
Where you build will always matter — but how you contract to build will determine whether your investment thrives or falters.
