Key Points:
- Tariffs Are Driving Material Cost Volatility: While national construction material costs remained relatively stable in Q3, tariffs on imported metals—especially steel and aluminum—have begun to push prices upward. These tariffs, raised to 50% under Section 232, are already impacting costs for electrical gear, HVAC equipment, and metal components like studs and curtain wall assemblies.
- Contractors Are Adapting with Strategic Procurement: To manage cost uncertainty, contractors are turning to flexible procurement strategies, including early ordering, alternate material specifications, and escalation clauses in contracts. These tactics help mitigate risks from supply chain disruptions and regulatory changes.
- Labor Shortages and Regional Demand Shifts Continue to Influence Costs: Persistent labor constraints and shifting demand across geographic markets are shaping pricing behavior. Contractors who remain agile and forward-looking—especially in sourcing and scheduling—are best positioned to navigate the evolving landscape.
Every quarter, Gordian lends its expertise to the Construction Cost Insights Report. Produced in partnership with Building Design+Construction, the report features market analysis from industry leaders based on their experiences, observations and Gordian’s RSMeans™ Data construction cost database. The industry standard for cost accuracy, RSMeans Data contains over 92,000 unit line items comprised of material, labor and equipment prices localized to 970+ locations. Available digitally and in print, this data is backed by more than 30,000 hours of research every year.
We recently published the latest Construction Cost Insights Report, covering Q3 of 2025. The most recent edition highlights strains the industry is under, the actions that created the strains and the ways project owners and construction contractors are reacting to market conditions.
Mounting Cost Pressures
The big headline of the Q3 report is that the industry is in reaction mode as costs continue to rise due to a confluence of factors, including changes in the geopolitical scene.
Pricing is on the rise for a few core materials. Copper electric wire costs jumped 12% from Q2 to Q3, conduit prices are up 6.8% over that same span and lumber costs rose 6.42% during the quarter. These individual component increases have resulted in higher prices for electrical gear, HVAC equipment and curtain wall assemblies, to name a few items. Labor costs continue to increase as well, up 2-3% annually since 2021. According to Gordian’s RSMeans cost database, this trend shows no signs of slowing down.
The holistic reaction is suboptimal. Rising costs are causing schedules to extend, projects to be postponed and teams to change their normal planning operations.
Evolving Industry Behaviors
Contractors are reporting that owners are responding to shifting market dynamics in a variety of ways. According to Tom Park, Vice President of National Strategic Supply Chain Group at Skanska USA Building, owners are building escalation clauses into contracts and adjusting language to protect their financial interests.
But owners aren’t the only group changing their normal operations. Contractors are exploring alternate material specifications, ordering long-lead items earlier in the design phase and using digital procurement tools to identify alternative vendors.
These adaptations are helping all stakeholders stay responsive and resilient in an uncertain market.
Adjusting to the Refrigerant Transition
The year 2025 ushered in a new federal government mandate regarding refrigerants. The shift from R-410A to R-454B has caused delays and cost increases for HVAC equipment. To make matters worse, there is a shortage of both the newly mandated refrigerant and its cylinders. In response, some teams are reevaluating equipment selections and pivoting to split-system solutions to avoid delays.
An Industry Showing Signs of Stress
Rising material and labor costs. Rapid operational changes. Equipment shortages and project delays. The construction industry is under serious stress, and it is only beginning to show. As the year rounds its final corner, it remains to be seen how much more strain the industry can handle and how all actors will respond.
