On February 20, 2026, the Supreme Court struck down an extensive series of tariffs imposed last year by President Trump, holding that they were not authorized under the International Emergency Economic Powers Act (“IEEPA”). And on March 4, 2026, the United States Court of International Trade began the process of refunding certain of “the millions of entries that were subject to IEEPA,” through a process known in the international trade context as liquidating.
These recent decisions by the Supreme Court and Court of International Trade may prompt federal contractors to consider seeking refunds of tariffs paid to import goods required to perform under their government contracts. As we covered in a previous post, government contracts may contain clauses allowing for price increases following the imposition of a new federal tax. These clauses can also work the other way and require a price decrease (or a credit to the Government under a cost-reimbursement contract) in the event of an after-relieved tax.
Fixed-price contracts. Many fixed-price contracts include the clause at FAR 52.229-3, which provides that the contract price shall be decreased by the amount of any “after-relieved Federal tax,” defined as “any amount of Federal excise tax or duty, except social security or other employment taxes, that would otherwise have been payable on the transactions or property covered by this contract, but which the Contractor is not required to pay or bear, or for which the Contractor obtains a refund or drawback, as the result of legislative, judicial, or administrative action taking effect after the contract date.” (Some contracts may instead include FAR 52.229-4, which includes similar provisions.) In the event of an after-relieved tax, such as a tariff, the contractor must “promptly notify” their contracting officer “of all matters relating to” the tariff “that reasonably may be expected to result in . . . [a] decrease in the contract price,” and to follow “appropriate action” directed by the contracting officer accordingly. FAR 52.229-3(g). If neither FAR 52.229-3 nor FAR 52.229-4 is incorporated in a particular contract, contractors should have a sound argument that the Government failed to protect any right to a price reduction, and that the contractor is not obligated to decrease its contract price to account for a refunded tariff.
As discussed in our previous post, we have not identified any precedent in which a court has expressly determined whether FAR 52.229-3 or FAR 52.229-4 applies to a “tariff.” Nor has any court directly addressed whether illegally imposed duties or tariffs constitute an “after-relieved tax” subject to the clause. However, it bears emphasis that the Executive Orders that imposed the tariffs, as well as the Supreme Court opinion, used the terms “tariff” and “duty” interchangeably.
Cost-reimbursement contracts. Cost-reimbursement contracts are subject to several provisions that might obligate contractors to provide a credit or payment to the Government for any tariff refunds that were originally treated as allowable costs. Most directly, FAR 31.205-41(d) provides that “[a]ny taxes, interest, or penalties that were allowed as contract costs and are refunded to the contractor shall be credited or paid to the Government in the manner it directs.” More broadly, FAR 31.201-5 provides that “the applicable portion of any income, rebate, allowance, or other credit relating to any allowable cost and received by or accruing to the contractor shall be credited to the Government either as a cost reduction or by cash refund.” Finally, the standard Allowable Cost and Payment clause, FAR 52.216-7(h)(2), provides that a contractor must “pay to the Government any refunds, rebates, credits, or other amounts (including interest, if any) accruing to or received by the Contractor or any assignee under this contract, to the extent that those amounts are properly allocable to costs for which the Contractor has been reimbursed by the Government.”
In other words, contractors performing under cost-reimbursement arrangements will generally be subject to a contractual obligation to make an appropriate credit or payment to the Government upon receiving refunds of tariffs that have been allocated to contracts.
Conclusion. For government contractors, tariff refunds come with obligations. As is often the case, navigating these obligations will require timely documentation, careful assessment of relevant facts, and financial and legal analysis. We’d be pleased to assist with any questions as they arise.