On February 19, 2026, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned a luxury timeshare resort near Puerto Vallarta connected to Cartel de Jalisco Nueva Generacion’s (CJNG).¹ This action signals increased scrutiny of tourism-related businesses operating in high-traffic resort destinations and highlights potential sanctions exposure for companies across the broader travel and hospitality industry.

Adjacent industries such as cruise operators and companies that maintain relationships with tourism-related businesses in Mexico and other major tourist destinations should pay close attention to these enforcement actions and make sure that their compliance programs proactively address such risks.

OFAC Targets Timeshare Fraud Network Linked to CJNG

Consistent with the U.S. Government’s crackdown on transnational criminal organizations and cartels, OFAC added Kovay Gardens, a luxury timeshare resort located near Puerto Vallarta, Mexico — along with multiple individuals and affiliated companies tied to the CJNG — to the Specially Designated Nationals and Blocked Persons (SDN) List.² According to the U.S. Department of the Treasury, the sanctioned network allegedly operated a sophisticated fraud scheme targeting U.S. timeshare owners.

The scheme reportedly involved deceptive sales and resale tactics designed to induce victims to pay fees connected to purported rental or resale opportunities. Victims, who were often elderly U.S.-based Mexico timeshare holders, were often contacted through cartel-run call centers that brokers or intermediaries had used to locate buyers or renters for their properties. They were asked to first pay taxes, transfer fees, or other costs tied to promised transactions that ultimately never occurred.

As a result of the designation, all property and interests in property of the designated or blocked persons that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons. OFAC has issued one such license, authorizing the wind down of transactions involving Kovay Gardens.³ The sanctioned individuals and entities can be found on OFAC’s designation page .

Background on Timeshare Fraud in Mexico

Timeshare-related fraud schemes have increasingly become a focus of U.S. enforcement authorities in recent years. Law enforcement agencies have reported significant financial losses by U.S. consumers connected to fraudulent resale and rental schemes targeting timeshare owners. OFAC issued an alert in March 2023 regarding such scams, warning that individuals may falsely claim to represent OFAC in furtherance of their fraud.⁴ According to the U.S. Department of Treasury, the Kovay Gardens designation also marks the sixth time OFAC has sanctioned those linked, directly or indirectly, to CJNG’s timeshare fraud activities, resulting in the designation of over 90 individuals and entities at the time of the February designation.⁵

Industry stakeholders have welcomed increased enforcement efforts targeting timeshare fraud. The American Resort Development Association (ARDA), the leading trade association representing the timeshare industry, publicly supported the actions, emphasizing that enforcement against fraudulent actors protects consumers while reinforcing the integrity of legitimate timeshare operations.⁶

The Kovay Gardens designation thus reflects both a consumer protection priority and a broader strategy to disrupt cartel-linked financial networks operating in tourism-related sectors.

Implications for Cruise and Travel Operators

Although the designation specifically involves a timeshare resort, the development has broader implications for companies operating across the travel and hospitality industry.

Cruise operators and travel companies frequently interact with a wide range of local tourism businesses, including resort operators, excursion providers, transportation vendors, and tourism services in major destination markets. These relationships can create potential sanctions exposure where such businesses are connected to sanctioned persons or criminal networks.

Sanctions risks may arise where travel companies engage vendors or service providers that are owned or controlled by designated parties or where payments or transactions indirectly involve blocked entities. For example, news outlets found that travel operators were still selling bookings at Kovay Gardens, even after the sanction designation.⁷ As a result, cruise operators frequenting popular resort destinations should consider whether existing compliance frameworks adequately address such risks.

Parallel Enforcement Activity in Mexico

Enforcement is not just happening on the U.S. side. Mexican authorities have also taken parallel enforcement action in coordination with the U.S. sanctions designations. At the same time OFAC announced the Kovay Gardens related sanctions, Mexico’s Ministry of Finance and Public Credit, acting through its Financial Intelligence Unit (FIU), added several individuals and entities tied to the same CJNG network to Mexico’s List of Blocked Persons.⁸ The Secretary of Security and Citizen Protection in Mexico, Omar García Harfuch, recently also reported that there are additional investigations in Mexico related to resorts allegedly linked to criminal operations.⁹ The coordinated actions reflect increasing information sharing and enforcement alignment between U.S. and Mexican authorities targeting cartel-linked financial activity in tourism-related sectors.

Compliance Takeaways for Travel and Hospitality Companies

As U.S. enforcement authorities continue to expand efforts to target cartel-linked financial activity, companies operating in the travel and hospitality industry should review their sanctions compliance programs to ensure they remain aligned with evolving enforcement priorities. The Kovay Gardens designation provides several practical compliance considerations for companies operating in the travel, tourism, and hospitality sectors:

1. First, companies should ensure that sanctions screening and due diligence procedures extend to local tourism partners, including resort operators, excursion providers, travel agencies, and related vendors. Such screening should always be run against updated designation lists and should include screenings for any individuals or entities identified by OFAC and other agencies.
2. Second, organizations should evaluate whether their compliance programs account for beneficial ownership risks associated with foreign vendors that may operate through layered corporate structures.
3. Third, hospitality companies should consider whether vendor onboarding and payment approval processes adequately identify potential sanctions exposure in high-risk tourism markets. Currently onboarded vendors should undergo a process for ongoing counterparty review and re-screening. Changes in business scope, leadership, or operating regions should automatically trigger a due diligence refresh and possibly a targeted audit.
4. Finally, companies should ensure that personnel responsible for operations and vendor relationships in international destinations are trained to identify sanctions-related risks, escalate potential concerns, and report signs of cartel or TCO interference. Companies should be sure to establish secure, anonymous internal whistleblower channels and provide amnesty or protection policies to encourage early reporting of compliance breaches or attempted criminal coercion.

Â鶹´«Ã½â€™s multidisciplinary international trade and national security team advises U.S. and multinational companies on sanctions compliance, export controls, customs enforcement, supply chain risk management, and other regulatory issues affecting cross border operations. Our team regularly counsels companies in the travel, hospitality, transportation, and tourism sectors on sanctions exposure, third party risk management, and evolving enforcement priorities involving transnational criminal organizations. To discuss how Â鶹´«Ã½ can assist with navigating sanctions compliance and related regulatory risks in international tourism markets, please contact Alejandro Gomez (agomez@foley.com ), Olivia Singelmann (osingelmann@foley.com), Jack Korba (jack.korba@foley.com ), or Ahmad Murrar (amurrar@foley.com).

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Recent Chapter 11 bankruptcy filings by Saks Global Holdings, LLC on January 13, 2026, and Eddie Bauer LLC on February 9, 2026, underscore the continued financial stress facing companies across the fashion and beauty sector. Consumer inflation, financial uncertainty, reduced discretionary spending, tariff exposure, inventory and supply chain disruptions, shifts in customer behavior driven by the growth of ecommerce, and higher borrowing costs have placed sustained pressure on traditional operating models. As these challenges intensify, distressed brands are increasingly turning to court‑supervised asset sales under Section 363 to monetize intellectual property and going-concern value, streamline operations, and facilitate ownership transitions. In the past year alone, multiple well‑known fashion and beauty companies have pursued or completed Section 363 transactions as part of broader restructuring efforts.

Why 363 Sales Remain Attractive for Fashion and Beauty Debtors

Section 363 of the Bankruptcy Code allows a debtor, after notice and court approval, to sell assets outside the ordinary course of business, free and clear of liens, claims, and encumbrances. This restructuring structure allows a buyer to start the company anew with a clean balance sheet and new financing, free from many legacy debts and obligations. The buyer retains broad discretion to select the assets it wishes to purchase, assume only those contracts and leases necessary or desired to operate the business, and leave behind assets, leases, and obligations deemed unprofitable or otherwise undesirable within the bankrupt seller entity.

For fashion and beauty companies, whose value is often concentrated in brand equity, trademarks, proprietary formulas, and customer relationships, a Section 363 sale process offers a path to preserve core assets and value even when the operating business is over‑levered or burdened by unfavorable leases or prior trade or other debt. The ability to cleanse assets through a court order continues to attract both strategic buyers and financial sponsors seeking to redeploy established brands with reduced risk.

Section 363 transactions also align closely with the industry’s emphasis on speed and continuity. Traditional Chapter 11 plan‑based exits can require lengthy court approval periods, creditor solicitations and voting requirements, and multiple statutory confirmation standards before a company can emerge from bankruptcy. These factors can increase execution risk, elevate costs, and undermine acquiror or investor confidence in financing a go‑forward business. By contrast, Section 363 sales can often be completed quickly and early in a case, and the standard for bankruptcy court approval of such a sale is comparatively streamlined and debtor-friendly, requiring a showing that the transaction represents a sound exercise of the debtor’s reasonable business judgment.

The speed and decreased execution risk of a Section 363 sale can significantly limit disruption to supply chains, licensing arrangements, and consumer goodwill. This consideration is particularly important for beauty brands and fashion labels, whose market relevance, financing sources, and supplier relationships can erode quickly during prolonged insolvency proceedings.

Recent Examples from the Fashion and Beauty Sector

One of the most prominent recent examples is the Avon Products transaction, where a Chapter 11 filing led to a court‑approved sale process for substantially all assets of the international beauty business. The case illustrates how Section 363 sales can be structured alongside negotiated settlements among debtors, lenders, and creditor committees to achieve a going‑concern transfer while resolving intercompany and legacy claim issues. This approach preserved brand continuity across global markets while allowing the bankruptcy estates to proceed toward liquidation of remaining assets.

Beyond Avon, a steady pipeline of fashion and beauty companies has entered Chapter 11 with the stated intent to pursue asset sales. In its recently filed Chapter 11 case, Eddie Bauer LLC proposed a Section 363 sale aimed to maximize value by selling desirable store locations. The watch distributor and fashion brand licensee E. Gluck also recently obtained an order of a Bankruptcy Court approving a Section 363 sale of certain critical assets to support the continuation of its business after suffering liquidity and debt issues. These cases span fashion and accessories, beauty, mid‑market apparel, and specialty retail, reinforcing that distress is not confined to any single segment. Many such filings pursue dual‑track processes, where debtors market assets while simultaneously evaluating plan alternatives, with Section 363 sales often emerging as the most practical and value-preserving outcome.

Emerging Themes in Fashion and Beauty Section 363 Transactions

Several consistent themes have emerged across recent Section 363 transactions in the fashion and beauty sector.

Intellectual Property as the Primary Value Driver

Intellectual property is frequently the primary source of value. Buyers are often less inclined to assume expansive brick‑and‑mortar footprints or long‑term lease obligations, and are more focused on acquiring trademarks, licenses, formulations, customer lists, and digital infrastructure. As a result, disputes in Section 363 sales increasingly center on IP rights, and license and distribution agreements. Fashion and beauty brands commonly operate through complex licensing and regional distribution models, raising legal questions about assignability and contract assignment and cure obligations. Accordingly, asset purchase agreements, diligence processes, and license negotiations must be carefully executed to delineate assumed liabilities and ensure that IP transfers are clearly authorized by the sale order and any necessary consent, to avoid post-closing surprises or litigation. Depending on the governing agreements and IP at issue, licensors may possess statutory or contractual rights to object to a sale, which must be identified and addressed early in the process.

Continued Use of Stalking Horse Structures

“Stalking horse� bid structures remain prevalent, even in cases where the stalking horse buyer is an existing stakeholder or affiliate. Establishing a baseline bid helps debtors demonstrate value maximization and provides procedural protection against later challenges, particularly from unsecured creditors. Bankruptcy courts continue to scrutinize stalking horse bidder protections, such as breakup fees, sale timelines, and reimbursements of the buyer’s expenses, but generally approve them where supported by marketing efforts and evidentiary records.

Complementary Bankruptcy Tools to Support Sale Execution

Debtors increasingly deploy Section 363 sales in combination with other bankruptcy tools to enhance transaction certainty. These include critical vendor orders to stabilize supply chains, store‑closing procedures to liquidate inventory and exit unprofitable locations or business units, and structured financing orders incorporating milestones tied to the sale process. Together, these measures improve the likelihood that a restructured business will exit bankruptcy on an accelerated and economically viable timeline.

Implications for Buyers and Brand Owners

For acquirers, recent fashion and beauty Section 363 sales reinforce both the opportunity and the risk inherent in distressed transactions. While the “free and clear� protections of Section 363 remain powerful, buyers must conduct diligence with an eye toward financial performance and profitability improvements, successor liability theories, foreign regulatory regimes, and ongoing brand stewardship obligations. In global beauty and fashion transactions, coordination with non‑U.S. proceedings and licensees is often essential.

For brand owners and sponsors, these cases serve as a reminder that early planning matters. Companies that engage insolvency and bankruptcy advisors and commence marketing efforts before liquidity fully erodes are better positioned to execute value‑maximizing sales. Conversely, delayed filings can compress timelines, limit bidder participation and decrease value, particularly in brand‑driven businesses where momentum is critical.

Looking Ahead

In an environment marked by volatility in consumer spending, persistent supply‑chain pressures, and a higher cost of capital environment, Section 363 sales are likely to remain a fixture in fashion and beauty restructurings. Whether used to bridge to new ownership or as part of an orderly wind‑down and liquidation, these transactions continue to shape how iconic brands are repositioned or reinvented or exit the market.

Three trends mark the tensions around innovation with AI in the Fashion Industry.

• AI is trained on data. Debates around the sources of that data and whether or how data permissions should be secured continue to evolve.
• Sustainability in the fashion industry has been a major focus for years. But the larger picture of how AI and sustainability efforts may intersect is still emerging.
• Designers range in their acceptance of AI. Some actively use AI for design, while others take a strong position that AI undermines craftsmanship and creativity.

In 2026, we expect there to be frequent developments in these trending areas. And given the dynamic way designers, models, and insiders are already responding to these tensions, it is clear the fashion industry is the one to watch as AI usage continues to evolve globally.

Protecting Brand and Image Integrity: Intellectual Property Challenges in AI Training

AI “learnsâ€� by using training data. However, in creative industries like fashion, that data may include intellectual property.¹ As the debate over whether this data should be “fair useâ€� unfolds, some creatives are making decisions for their own brands.² The Fabricant has taken a position against using copyrighted runway images for data training, publishing an AI Ethics FAQ where they forecast that AI regulations in the future may require copyright permissions for data training.³ Some runway models are also taking note, expressing concerns about how their readily available images can lead to their likenesses being manipulated or manufactured by AI.⁴ To address this, in 2025, New York State passed legislation that prohibits model management companies from creating, altering or manipulating “a model’s digital replica without clear written consent.â€�⁵ As ongoing litigation, such as Getty Images v. Stability AI⁶ may establish legal parameters surrounding data training and permissions, the fashion industry continues to engage with AI around sustainability efforts as well as design.

Balancing AI-Driven Sustainability

The tensions around sustainability and AI in the fashion industry are complex. AI offers efficiencies that can be scaled, including in product development, manufacturing and distribution, and leading to reductions of waste.⁷ However, AI also carries an environmental footprint. As the United Nations Environment Programme has documented, the data centers that power AI consume large amounts of water, require significant energy resources to operate, and produce electronic waste.⁸ The trade-off in efficiencies between reduced waste in the fashion design cycle versus the environmental costs of AI is a tension fashion houses are navigating as they seek to prioritize sustainability. But these trade-offs are not garnering exclusively black-and-white responses. AI has also been intentionally used to advocate for conservation efforts. Stella McCartney has taken a unique approach by marrying sustainability concerns and AI into a campaign. By featuring AI-generated birds, alongside the words “SAVE WHAT YOU LOVE,â€� the campaign highlighted the nearly 50% of all bird species in decline. The AI-generated birds serve as a conservation warning, and “urges viewers to rethink their relationship with nature.â€�⁹ As we learn more about the sustainability implications of AI in fashion, designers like Stella McCartney are at the vanguard, highlighting new forms of innovation that marry sustainability efforts and AI.

Human Creativity in the Age of AI: Safeguarding Artistry and Heritage Craftsmanship in Fashion Design

Fashion houses are embracing AI to every degree possible. Some designers, like Tommy Hilfiger, have developed an AI styling game, while others, like Gucci, have used AI to develop new lines.¹⁰ From a design perspective, Gucci has been able to train AI models on their past designs, allowing them to develop design iterations more quickly, and tighten design cycles. The Fabricant has taken AI-design one step further, creating a digital collection that sold a virtual dress for $9,500.¹¹ Meanwhile, other designers worry that something fundamental may be lost, and have taken a position against using AI for any artistic or design functions. VETEMENTS, for example, created a collection of “Anti-AIâ€� garments designed to look as if they were AI-designed, while utilizing craftsmanship techniques that can only be executed with human hands.¹² And Momifa has argued that because AI is trained on existing data, it is less capable of innovating, whereas their human-designed fashion focus retains important aspects of craftsmanship and creativity.¹³ Despite these wide-ranging reactions, what is incontestable is the level of innovation AI is sparking within the industry, even among some of those with critiques.

These major tensions and trends in the fashion industry are likely to continue to unfold and develop over the coming year. Of particular interest are the dynamic and creative responses the fashion industry has brought to AI — demonstrating this is the industry to watch as AI-use continues to expand. The innovations thus far highlight how humans are creating unexpected new possibilities for how this technology can be harnessed.

1. Adam Buick, Copyright and AI training data—transparency to the rescue?, Journal of Intellectual Property Law & Practice, Volume 20, Issue 3, March 2025, Pages 182-92, .
2. Roomy Khan, AI Training Data Dilemma: Legal Experts Argue for ‘Fair Use’, Forbes, October 4, 2024, .
3. The Fabricant Editorial Team, AI-Ethics FAQ for AI-generated Fashion Images, The Fabricant, August 7, 2025, .
4. Andy Hirschfeld, The Latest Industry Upset with the use of AI: Fashion, Al Jazeera, February 23, 2024, .
5. Department of Labor, Prohibited Actions by Model Management Companies or Model Management Groups, .
6. Getty Images (US), Inc. & Ors v. Stability AI Ltd [2025] EWHC 3343 (Ch); see also Getty Images (US), Inc. v. Stability AI, Inc. 2005, 1:23-cv-00135, (D. Del).
7. Maximilien Abadie, The Impact of AI on the Fashion Industry, Forbes, January 16, 2026, ; Neil Sahota, Future of Fashion Has AI As the New Must And Your Personal Consultant, Forbes, June 4, 2024, .
8. UN Environment Programme, AI Has an Environmental Problem. Here’s What the World Can Do About That., November 13, 2025, .
9. Stella McCartney’s AI Birds Are a Warning in the Summer 2025 Campaign, The Fashionography, February 19, 2025, .
10. Maghan McDowell, Tommy Hilfiger on AI and His New Fashion Game, Vogue Business, December 19, 2023, ; Team DigitalDefynd, 8 Ways Gucci is Using AI [Case Study] [2026], DigitalDefynd, .
11. Neil Sahota, Future of Fashion Has AI As the New Must And Your Personal Consultant, Forbes, June 4, 2024, .
12. Jascmeen, Vetements Delivers ‘Anti-AI’ Collection, Goodfeed, .
13. Momifa, Why Designers Are Fighting Back, Medium, June 10, 2025, .

The U.S. Consumer Product Safety Commission (CPSC) regulates consumer products sold in the United States, and jewelry and accessories are no exception. Whether your business offers costume jewelry, fine jewelry, watches (including smartwatches), or children’s accessories, all these products must meet certain safety standards and regulations. Compliance obligations exist even if your company does not manufacture the items it sells. Importers, brand owners, and distributors selling directly to U.S. consumers all bear responsibility for ensuring compliance.

While jewelry and accessories may seem low risk compared to products like toys or electronics, they present distinct hazards based on how they are designed, worn, and handled. Certain key considerations are highlighted below.

Failure to address identified risks (and report to the CPSC when they meet the ) can have real world consequences, including recalls, penalties, and reputational harm. For example, in January 2025, Fitbit for failure to immediately report a burn hazard with respect to certain of its smartwatches.

Heightened Requirements for Children’s Products

Of the fourteen jewelry- and accessories-related recalls since July 2020, over half involved products marketed to children. See, e.g., from Mar. 27, 2025; from Sept. 19, 2024. This is unsurprising given children’s products are subject to heightened regulation, including , , and compliance with to prevent choking hazards. Even companies focused on adult products must meet these requirements when producing youth-oriented designs.

Magnets and Button Cell Batteries

Magnetic clasps and can pose serious health risks if these items (or other small decorative elements) detach and are swallowed. Design and quality controls should ensure that all small parts, including magnets and batteries, are properly secured and tested for compliance. Batteries can also overheat, posing a risk of burns. See, e.g., from Mar. 2, 2022. Companies should regularly test for compliance and thoroughly investigate potential reports of overheating and burns related to “smart� accessories and other battery-operated products.

Sharp Edges and Pinch Points

Common features such as prongs, pointed shapes, and rigid components can present sharp edges and pinch points. Jewelry and accessories should be evaluated in both new and worn conditions to identify potential burrs, edges that are or may become sharp, and loose parts that could cause injury.

Packaging Hazards and Compliance

Packaging is also subject to scrutiny. Items with treated cleaning cloths (e.g., chemical treatments subject to the Federal Hazardous Substances Act) may require certain labels and/or and larger plastic bags must include suffocation hazard warnings. Compliance reviews should be holistic, covering both the product and its packaging.

Lead and Heavy Metal Content, Including in Coatings, Paints, and Enamels

Many jewelry recalls over the past six years have related to impermissibly high levels of lead and cadmium content, particularly in products intended for children. See, e.g., from Jan. 2, 2025; from Sept. 21, 2023; from July 1, 2020. Federal regulations set strict permissible limits for lead in children’s products (generally 100 ppm or lower, depending on the material), and the CPSC has also scrutinized cadmium and other toxic metals that can cause harm if ingested. Enamel finishes and painted surfaces must also meet requirements. Wear and abrasion testing is important to ensure that hazardous base materials are not exposed during normal use. Further, certain metals (e.g., ) can cause allergic contact dermatitis and other skin reactions in sensitive consumers. Materials disclosure, transparent labeling, and the use of hypoallergenic alloys can reduce complaints and help meet safety obligations.

Recall Preparation

Jewelry and accessories recalls can be logistically complex, as these products are commonly gifted, worn, or stored in personal collections. Companies should have a recall plan that aligns with the , including tracking sales across various channels and clear consumer outreach.

Supply Chain Transparency

Jewelry and accessories production often involves multiple countries for sourcing, manufacturing, and assembly. The CPSC’s place responsibility on importers and brand owners to verify compliance. This includes obtaining supplier certifications, conducting periodic independent testing, and maintaining accurate records.

Compliance with CPSC requirements for jewelry and accessories goes well beyond metal content limits. Allergic reactions, magnet and battery safety, sharp edges, packaging hazards, and material durability are all areas of regulatory focus. Because jewelry and accessories are oftentimes worn directly on the body, safety issues can quickly escalate into health risks and reputational damage. Addressing these considerations in design, sourcing, and quality control processes helps protect both consumers and brands. If you have questions about how CPSC regulations can impact your business, Â鶹´«Ã½ is here to help.

The February 26, 2026, “Newish� Independent Contractor Test

The independent contractor test under the Fair Labor Standards Act (FLSA), which determines whether an individual is classified as an employee or an independent contractor, has started to resemble a ping-pong match — over the last five years the test has changed three times — leaving employers uncertain whether they may face steep penalties for employee misclassification. On Friday, February 26, 2026, the Department of Labor (DOL) issued a that largely reverts back to the 2021 business-friendly, five-part “economic reality� test to determine independent contractor status under FLSA, the Family and Medical Leave Act (FMLA), and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA) (the proposed rule).

The proposed rule seeks to replace President Biden’s 2024 “totality of the circumstances� rule. The back and forth (summarized below) has left businesses grasping for certainty in classifying workers. Revisions to worker classification criteria can significantly impact franchisors and manufacturers, particularly concerning the categorization of franchisees and distributors. The balance between exercising control over brand standards and allowing operational independence franchisors and manufacturers susceptible to misclassification claims.

• 2021 (Trump administration): Established a five-factor “economic realityâ€� test, elevating two core factors (control and opportunity for profit/loss) as the most important.
• 2024 (Biden administration): Rescinded the 2021 rule, returning to a “totality of the circumstances” test, where no single factor was weighted more than others, making it harder to classify workers as independent contractors.
• 2026 (Proposed – Trump administration): The 2026 proposed rule aims to reverse the 2024 rule’s “chilling effect” on contracting, prioritizing business certainty and reducing “regulatory whiplash.” While 2024 focused on reducing misclassification, the 2026 proposal seeks to re-establish an “employer-friendly” standard, similar to the 2021 regulations under the five-factor analysis.

The new proposed rule reflects an ongoing effort by the DOL to realign classification rules with long‑standing interpretations grounded in the “economic reality� test. It closely resembles the prior Trump administration’s 2021 classification test, which was replaced in 2024.

The 2026 Proposed Rule Summary

The proposed rule focuses on two main “core factors.� If the core factors do not “both point to the same classification decision,� three additional and less important “secondary factors� may be considered. However, the DOL seeks to continue with the 2021 rule’s emphasis that these factors are not exhaustive.

• Core factors:
  • Nature and degree of control over the work.
  • Opportunity for profit or loss based on initiative and/or investment. If these two factors align, there is a “substantial likelihoodâ€� that the classification is accurate.
• Secondary factors (used when core factors are inconclusive):
  • Amount of skill required for the work.
  • Degree of permanence of the working relationship.
  • Whether the work is part of an integrated unit of production. 

Why the Proposed Rule Was Issued to Change the Independent Contract Test — Again

The DOL explains that the 2024 rule failed to provide clarity on how the different factors should be weighed and applied as well as failed to emphasize that the proper inquiry is whether there is economic dependence on work rather than economic dependence for income.

The DOL also noted that the existing approach had a chilling effect on independent contractor status and referred to changes in the 2024 rule that were not consistent with applicable Supreme Court rulings. For example, the “investment factor� analysis typically focused on the investment of the worker. While the 2024 rule changed the investment fact analysis to consider the investment of the worker and the potential employer, prior Supreme Court authority focused solely on the investment of the worker. The proposed rule reverts back to this standard.

What Happens Next?

The DOL has invited comments to the Notice of Proposed Rulemaking (NPRM)within 60 days, or until April 28, 2026. The 2024 rule was not finalized for over a year after the NPRM was issued, so businesses should not anticipate an immediate change.

What Can Your Business Do Now?

Businesses should keep in mind that the proposed rule only addresses independent contractor status with respect to the FLSA and federal laws that incorporate the FLSA’s scope of employment. State-specific independent contractor tests, as well as different tests for purposes such as IRS compliance and the National Labor Relations Act, remain in effect and still must be complied with where applicable.

Businesses should look for guidance under the 2021 rule to determine if a worker’s job duties are controlled by company management and whether the worker has made a financial investment in the work.

Companies should also consider an internal audit of risky independent contractor decisions to determine independent contractor status under the core factors. Audits conducted in conjunction with legal counsel can provide a good faith defense to liquidated damages in the event a lawsuit is filed.

Companies should work closely with their legal counsel to determine whether decisions made under prior independent contractor tests will survive analysis under the proposed rule.

On February 3, 2026, the Delaware Supreme Court issued a decision reiterating the well-settled contract principle that courts should consider the adequacy of consideration for restrictive covenants at the time of contract formation, not at the time of enforcement. The case is North American Fire Ultimate Holdings, LP v. Alan Doorly.¹

As we have previously written, although the Federal Trade Commission (FTC) recently walked away from its multi-year effort to ban employee noncompete covenants altogether, states like Delaware are still making it harder to enforce noncompetes that do not contain reasonable temporal, geographic, or scope of activity restrictions. Employers thus need to remain vigilant and ensure that their employee restrictive covenants meet the necessary requirements for enforcement.

One often overlooked element of contract formation in the restrictive covenant space is the existence of adequate consideration. Many employers take for granted that their agreements with employees contain sufficient consideration to support the reciprocal promise to abide by post-employment restrictions. A common form of consideration in such agreements is stock or incentive units, which sometimes can be forfeited under specific conditions, and the Doorly decision addressed one critical aspect of this arrangement: when does a court assess the adequacy of consideration where the consideration is forfeited?

In Doorly, an employer and employee entered into an incentive unit grant agreement where, in exchange for the employer’s issuance of common units that would vest over time, the employee agreed to, among other things, abide by certain noncompetition and non-solicitation covenants. The unit agreement further contained a clause that required forfeiture of all vested and unvested units if the employee was terminated for cause, which the employer triggered when it terminated the employee for cause because he formed a competitive entity during employment.

The employer subsequently filed a lawsuit in Delaware Chancery Court seeking to enforce the restrictive covenants, and the employee responded by filing a motion to dismiss, arguing in part that the forfeiture of the units made the contract unenforceable for lack of consideration. The Delaware Chancery Court granted the motion to dismiss, holding that the units were the sole consideration for the restrictive covenants, and thus, once the employer terminated the employee for cause and declared the forfeiture of the units, the consideration disappeared. In other words, the Chancery Court said, “no consideration means no enforceable contract.�

The employer appealed this decision, arguing that consideration existed at the time of the contract’s formation, and thus that the Chancery Court erred by analyzing the consideration element after forfeiture, i.e., at the time of enforcement. The Delaware Supreme Court agreed with the employer, concluding that the determination of whether valid consideration exists should be assessed at the time of contract formation, not at the time of enforcement. The Delaware Supreme Court did not, however, reach the issue of whether forfeitable incentive units constitute valid consideration at the time of formation, instead sending the case back to the Chancery Court to reconsider this issue as well as the other arguments raised by the parties in the case below.

The Doorly decision reminds us that restrictive covenants are essentially just clauses in a contract, and Delaware law follows the bedrock contract principle that the existence of consideration is a necessary element for contract formation. It is also a warning to all employers that utilize Delaware choice of law clauses — which are popular in stock award agreements like the unit agreement in Doorly — to review their agreements to ensure the adequacy of consideration given in exchange for the promise to abide by the restrictive covenants. This is doubly true if the incentive units are forfeitable under various conditions, and employers should consider specifying other or additional consideration for the restrictive covenants to ensure the adequacy of the consideration, even in the event of forfeiture.

1. C.A. 142, 2026 WL 274647 (Del. Supr. Feb. 3, 2026)

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On January 14, 2026, following an investigation by the U.S. Secretary of Commerce (Secretary), under Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. 1862) (Section 232), into the effects of imports of processed critical minerals and their derivative products (Critical Minerals) on the national security of the United States. After concurring with the Secretary’s determination that the quantities and circumstances of current Critical Minerals imports “threaten to impair the national security of the United States,� the President has authorized actions to be taken to adjust the imports of Critical Minerals to address the identified threat.

Overview of the Federal Action

The President has officially concurred with findings that the United States lacks a secure and reliable supply chain for Critical Minerals. In making this determination, Section 232 directs the Secretary and the President to consider factors related to national defense (including required domestic production needed for defense requirements, capacity of the domestic industry to meet such production needs, and availability of supplies and raw materials) as well as factors related to the national economy (including impacts of foreign competition and the displacement of U.S. products by “excessive imports�).

Consequently, the administration has initiated the following:

1. Negotiations with Trading Partners and Potential Trade Restrictions: The U.S. Trade Representative and the Secretary are directed to negotiate with foreign nations to adjust imports and mitigate security vulnerabilities. If negotiations are unsuccessful within 180 days, the administration may implement further measures, including tariffs or minimum import prices (price floors) for specific minerals.
2. Additional Regulatory or Deregulatory Actions: The Secretary, U.S. Trade Representative, and the Secretary of Homeland Security are directed to effectuate the proclamation through the issuance, amendment, or temporary suspension of their respective regulations, rules, and guidance.  
3. Supply Chain Monitoring: The Secretary will continue to monitor import levels and review their impact on national security to determine if further executive action is required
4. No Tariffs — Yet: Unlike for several other recent Section 232 investigations, the President has not (at this time) imposed tariffs.

Key Minerals Identified

The Secretary determined that Critical Minerals underpin critical military and economic applications and found that Critical Minerals are essential to each of the 16 critical infrastructure sectors identified by of April 30, 2024 (Critical Infrastructure Security and Resilience), including:

• Chemical Sector: lithium, fluorite, and bromine;
  • Communications Sector: gallium, germanium, indium, and yttrium;
  • Energy Sector: cobalt, nickel, uranium, praseodymium, and terbium.

Why This Matters to Companies with U.S. Mining and Processing Operations

This federal shift is highly relevant to companies mining for Critical Minerals in the United States for several key reasons:

1. Focus on Domestic Capacity: The proclamation explicitly identifies the decline in domestic production and the offshoring of facilities as a strategic weakness. The federal government now views “sufficient domestic mining and processing� as imperative to reducing reliance on foreign actors.
2. Addressing Price Volatility: The Secretary found that extreme price volatility in mineral markets has historically hindered private sector investment and led to the closure of domestic facilities. The administration’s intent to consider “price floors� is a direct attempt to ensure the long-term viability of domestic mining and processing.
3. Bridging the Processing Gap: The proclamation highlights a critical vulnerability — even when minerals are mined domestically, they are often exported for refining due to a lack of domestic processing capacity. For example, while the United States is a major producer of rare earth oxides, it remains nearly 100% reliant on imported rare earth permanent magnets. This indicates a federal push to not only mine but also process materials within the United States.
4. Alignment with Related Administration Trade Initiatives: Under the United States-Japan Framework for Securing the Supply of Critical Minerals and Rare Earths through Mining and Processing, signed October 28, 2025, the United States and Japan jointly committed to work together on investments in critical minerals mapping, mining, and recycling and to arrange for mutually complementary stockpiling. Japan has also announced investment commitments in the United States for critical minerals development, including a $350 million investment in a lithium-iron-phosphate production facility in the United States.  The proclamation potentially provides additional support for these commitments.

Next Steps

If action is taken by the President, Section 232 requires the President to provide a report to Congress within 30 days of the proclamation, explaining the President’s decision to take action under the statute. Moreover, the administration is required to provide an update on the status of trade negotiations within 180 days. We will continue to monitor these negotiations and any potential regulatory changes or guidance issued by the Department of Commerce or Homeland Security that may affect your operations or trade status.

About Â鶹´«Ã½â€™s Energy & Infrastructure Sector

Â鶹´«Ã½â€™s cross-disciplinary Energy & Infrastructure team of more than 200 attorneys regularly represents clients in the traditional and renewable power, oil and gas, nuclear, and infrastructure and energy transition industries. Â鶹´«Ã½ offers comprehensive legal services for energy and infrastructure companies and projects to guide clients through every phase — from development and site control to investment, commercial contracting and financing. Â鶹´«Ã½ can also assist companies involved in mining, processing, and disposal to navigate the various state and federal regulations, international agreements, and national security considerations.

The doctrine of obviousness-type double patenting (“OTDP�) is one of the most complicated aspects of U.S. patent law. Recent Federal Circuit decisions have addressed specific OTDP issues, but tension between competing objectives of this judge-made doctrine leave many open questions. Current USPTO leadership has not proposed new rules that would change how the Examining Corps applies the doctrine, but ex parte decisions by the USPTO Patent Trial and Appeal Board (PTAB) seem to reflect a willingness to hold examiners to the current state of the law.

OTDP Rejections Require a Reasoned Analysis

In Ex parte Mobile Tech, Inc., Appeal 2022-001034 (Reexamination Control 90/014,363) (decided Feb. 11, 2022), the PTAB reversed four OTDP rejections where the Examiner had not provided “an explanation … … to substantiate the Examiner’s conclusion� that the claims on appeal were obvious in view of the cited claims. The Office Action provided a claim chart aligning claim limitations, but did not address textual differences between the pending claims and the cited claims.

In reversing the rejections, the PTAB explained:

[W]here, as here, the Examiner’s rejection fails to (1) articulate any analysis apart from merely quoting the language of the relied-upon claims; (2) acknowledge the differences in that language; and (3) explain why those differences would have been obvious to ordinarily skilled artisans, the Examiner has not established non-statutory double patenting on this record. The rejection is, therefore, erroneous for that reason alone.

Later-Filed, Later-Expiring Patents Are Not Proper OTDP References

In Ex parte Baurin, Appeal 2024-002920, (Application No. 17/135,529) (decided Nov. 11, 2024) (reh’g denied Dec. 18, 2025), the PTAB reversed five OTDP rejections that cited later-filed, later-expiring patents as OTDP references and reversed a provisional OTDP rejection over a later-filed pending application with a later patent term filing date, finding that the later-expiring patents/application were not proper OTDP references.

The PTAB cited the Federal Circuit decision in Allergan USA, Inc. v. MSN Labs. Private LTD., 111 F.4th 1358 (Fed. Cir. 2024), for the principal that the purpose of OTDP doctrine “‘is to prevent patentees from obtaining a second patent on a patentably indistinct invention to effectively extend the life of a first patent to that subject matter.’� The PTAB also considered the Federal Circuit decisions in Gilead Sciences, Inc. v. Natco Pharma Ltd., 753 F.3d 1208 (Fed. Cir. 2014), and Abbvie v. Mathilda & Terrence Kennedy Institute, 764 F. 3d 1366 (Fed. Cir. 2014), and noted that in both cases the cited claims had an earlier filing date and earlier expiration date than the claims at issue. In contrast, the rejections on appeal relied on patents granted from later-filed applications with later expiration dates. Because they did not fit the Allergan paradigm, the rejections were reversed.

In a rare turn of events, the examiner filed a Request for Rehearing, arguing:

(1) the Board’s decision misapprehends the holding of Allergan;

(2) the Board’s decision is not consistent with USPTO guidance set forth in MPEP §§ 804 and 804.02; and

(3) the Board’s conclusion that the risk of separate ownership is “immaterialâ€� … is not supported by case law or USPTO guidance.

A reconstituted PTAB panel denied the request for rehearing in a 2-1 decision, with the new panel member dissenting. As to point (1), the majority stood by its application of Allergan and rejected the Examiner’s attempts to limit it to its facts. As to point (2), the majority disagreed in some respects and emphasized that the MPEP “cannot create new law or ignore the law.� As to point (3), the majority found that the risk of separate ownership does not justify an OTDP rejection based on an improper reference patent.

Precedential Decisions Would Provide Clear Guidance

While these decisions are not precedential, I understand the PTAB Bar Association has asked Director Squires to designate both as precedential. Doing so would provide clear guidance to applicants and examiners, and promote consistency in examination of applications under this complex doctrine.  In the meantime, Applicants faced with improper OTDP rejections can point to these decisions as informative, and consider appealing maintained rejections to the PTAB.

Attorneys at Â鶹´«Ã½ have extensive experience counseling clients on OTDP issues in their own and competitor patent portfolios. Contact the author or your Â鶹´«Ã½ attorney for more information.

Cryptocurrency investment scams perpetrated by transnational criminal organizations (TCOs) located in Southeast Asia are on the rise. Colloquially known as “pig-butcheringâ€� scams, TCOs build trust with victims, convince victims to invest in real cryptocurrency, and then con victims into transferring the real cryptocurrency into fake cryptocurrency investments. The TCO scammers then launder the cryptocurrency through sophisticated methods to include the utilization of accounts that are outside of U.S. jurisdiction. According to the U.S. Secret Service (“USSSâ€�), “this scam industry defrauds Americans of nearly $10 billion per year.â€�[1] Now,  the U.S. Attorney’s office for the District of Columbia has announced it has a plan to stop them.

On November 12, 2025, U.S. Attorney for the District of Columbia Jeanine Ferris Pirro announced the creation of the Scam Center Strike Force (“Strike Force�) in partnership with several law enforcement and Federal agency partners.[2] The Strike Force’s stated goal is to “secure America against Southeast Asian cryptocurrency-related fraud and scams�[3] by recovering stolen assets used to evade sanctions and facilitate scams and returning those assets to victims.

Civil Forfeiture As A Long-Armed Enforcement Tool

The Strike Force will use civil forfeiture actions to reclaim not just the stolen funds but also the infrastructure utilized to facilitate the scams, such as satellite terminals used for internet connection.   While the seizure of property does require judicially authorized warrants, subsequent civil forfeiture actions do not require any initiation of criminal proceedings. These actions are against the property itself and do not require the property to be owned or in the actual custody of the perpetrators of the alleged criminal activity at the time of the seizure.  The government must only explain in the warrant by a preponderance of the evidence, or more likely than not, that the property is linked to criminal activity. If the government can meet this low burden, law enforcement officials have the authority to seize and take control of the property for eventual forfeiture.

The DOJ’s civil forfeiture authority is extremely broad and can pose significant complications for those whose property is seized.  Property owners with no actual knowledge of the alleged criminal activity may still lose possession of their items, which can be difficult and time-consuming to contest, as the property owners must both establish ownership of the property and in some instances prove that the property was not connected to a crime. However, proponents counter that civil forfeiture is an essential tool in combating organized crime as the seizure of criminal enterprises’ assets and proceeds materially disrupts their operations. 

Despite their arguments to the contrary, foreign-based cryptocurrency exchanges are not beyond the reach of U.S. jurisdiction in the context of civil forfeiture. Statutes empowering the Strike Force to engage in civil forfeiture, such as the terrorism subsection of the Civil forfeiture statute, [4] explicitly extend to foreign and domestic assets. DOJ has strong policy and enforcement incentives to use civil forfeiture proceedings under this statute against TCOs, particularly those designated as Foreign Terrorist Organizations.

Targets and Trends

The Strike Force is identified and focused on Chinese-organized crime affiliates with operations in Cambodia, Laos, and Burma as key leaders of these cryptocurrency investment schemes. The Strike Force has already conducted operations in Myanmar, Indonesia, and Thailand, and has seized and forfeited over $400 million dollars in scam-obtained cryptocurrency funds. As part of U.S. Attorney Piro’s November 12 Strike Force announcement, she noted the Strike Force has initiated civil forfeiture proceedings seeking another $80 million in stolen funds.

Though the Strike Force is focused on Southeast Asia, the rise of cryptocurrency investment scams is a global trend. For example, on November 14, 2025, the Department of Justice announced five guilty pleas and over $15 million in civil forfeiture actions against the Democratic People’s Republic of Korea for “multimillion-dollar virtual currency heists at four overseas virtual currency platforms in 2023,� among other charges.[5] In addition, on October 14, 2025, the DOJ announced the largest ever forfeiture action against approximately $15 billion in Bitcoin tied to a multinational business conglomerate’s alleged involvement in cryptocurrency investment fraud schemes run through forced labor compounds.[6] The Bitcoin was previously stored in unhosted digital wallets whose private keys the chairman and founder of the conglomerate had in his possession.

Moreover, the Strike Force is aligned with a broader shift in U.S. strategy for addressing cryptocurrency scams. In April 2025, U.S. Deputy Attorney General Todd Blanche published a memorandum titled “Ending Regulation by Prosecution,� which outlined the DOJ’s approach to digital asset enforcement under the Trump Administration.[7] Blanche stated that the DOJ would “focus on prosecuting individuals who victimize digital asset investors, or those who use digital assets in furtherance of criminal offenses such as terrorism, narcotics and human trafficking, organized crime, hacking, and cartel and gang financing.�[8] Further, DOJ prosecutors would start prioritizing cases “that hold accountable individuals who (a) cause financial harm to digital asset investors and consumers; and/or (b) use digital assets in furtherance of other criminal conduct.�[9] The Strike Force is a clear step in this direction.

How To Prepare for the Strike Force’s Increased Enforcement

Corporations operating in sectors related to cryptocurrency or any companies dealing in large sums of digital assets on foreign exchanges should consider the creation of the Strike Force a warning sign that their assets may be at risk of being frozen even absent direct criminal exposure. Notably, the laws authorizing the Strike Force’s activity can be applied to persons that arguably facilitate violations or are strictly liable, including situations where the person “should have known� that they were facilitating a violation.

Given the heightened enforcement risk, those in the cryptocurrency space should engage in the following best practices:

• Implement robust anti-money laundering (AML) and know your customer (KYC) programs to ensure regulatory compliance.  
• Maintain detailed records surrounding trades, transactions, and internal communications to assist in challenging government-initiated forfeiture actions. 
• Consider utilizing blockchain analytic tools to ensure compliance with regulatory measures and establishing relationships with cryptocurrency forensic experts in order to ensure adequate preparation for contested forfeiture proceedings should there be a need to challenge government tracing methodologies or to assert “innocent ownerâ€� defenses.  
• Establish mechanisms for responding to any U.S. or foreign government inquiries and legal process demands, as cryptocurrency-related investigations frequently involve international cooperation among law enforcement and government agencies. This is particularly true for non-U.S. companies.

If you have questions or concerns about the issues raised in this article, please reach out to any of the authors or your Â鶹´«Ã½ & Lardner attorney.

The Â鶹´«Ã½Â International Government Enforcement Defense & Investigations Team is monitoring all international trade, government enforcement, and regulatory developments, which we are posting as they occur on our Tariff & International Trade Resources blog. For additional resources surrounding the mitigation of risks posed by the Administration’s crackdown on FTOs and the DOJ’s utilization of civil forfeiture authorities, our article on “Foreign Terrorist Organization Designations Provide DOJ With New Civil Forfeiture Authorities and Opportunities/,â€� provides additional compliance assessment information. If you would like to see future updates on related topics, please sign up for our Tariff & International Trade blog — 

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[1] Press Release, New Scam Center Strike Force Battles Southeast Asian Crypto Investment Fraud Targeting Americans, U.S. Secret Serv. (Nov. 12, 2025), .

[2] The Strike Force is a collaboration between the U.S. Attorney’s Office for the District of Columbia, the Department of Justice (“DOJ�) Criminal Division, the Federal Bureau of Investigation (“FBI�), USSS, the State Department, the Department of Treasury’s Office of Foreign Assets Control, and the Department of Commerce. Id.

[3] Id.

[4] See 18 U.S.C. Section 981(a)(1)(G).

[5] See Press Release, Justice Department Announces Nationwide Actions to Combat Illicit North Korean Government Revenue Generation, U.S. Dep’t Just. (Nov. 14, 2025), .

[6] See Chairman of Prince Group Indicted for Operating Cambodian Forced Labor Scam Compounds Engaged in Cryptocurrency Fraud Schemes, U.S. Department of Justice (Oct. 14, 2025),

[7] Memorandum from Deputy Attorney General Todd Blanche, Ending Regulation By Prosecution (Apr. 7, 2025), .

[8] Id. at 1.

[9] Id. at 2.

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 »å±ð²õ¾±²µ²Ô‑b¾±»å‑b³Ü¾±±ô»å 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 »å±ð²õ¾±²µ²Ô‑b³Ü¾±±ô»å 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 °ä´Ç²õ³Ù‑P±ô³Ü²õ 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 °ä´Ç²õ³Ù‑P±ô³Ü²õ with a Guaranteed Maximum Price (GMP). Here, the contractor is reimbursed for actual costs plus a fee, up to a capped “maximumâ€� 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, °ä´Ç²õ³Ù‑P±ô³Ü²õ 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, °ä´Ç²õ³Ù‑P±ô³Ü²õ 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.