Contractor confidence has taken a sharp hit in 2025, with the industry’s outlook at its lowest point since 2023. According to Associated Builders and Contractors (ABC), fewer than 26% of contractors expect profits to grow in the next six months, and over 40% anticipate a decline. This pessimism is fueled by a volatile mix of rising costs, supply chain disruptions, and project uncertainty.
The Tariff Effect: Data and Industry Voices
Several converging factors are behind the escalation:
Immediate Cost Increases: Construction input prices have now increased at a 9.7% annualized rate through Q1 2025, with March marking the third consecutive month of rapid escalation. “The emerging effects of tariffs are glaring in the March data release,” says ABC chief economist Anirban Basu.
Supplier Price Hikes: 80% of contractors report suppliers have notified them of tariff-related price increases, and 20% have had projects paused or interrupted due to tariffs.
Profit Squeeze: “Rapid-fire changes in tariffs threaten to drive prices higher for many essential construction goods,” says Ken Simonson, AGC chief economist. “Contracts that are signed or in-process did not factor in the cost of tariffs. Therefore, the increase in costs will most likely be absorbed by the contractor, which will impact margins,” adds Scott Damiecki of CohnReznick.
How Contractors Are Responding
Shorter Bid Validity: Many firms now limit how long bids are valid to avoid being locked into unfavorable pricing as material costs fluctuate.
Accelerated Procurement: Contractors are rushing to lock in prices, as “suppliers hit contractors with a wave of price hike notices in March, even before new tariffs took effect,” says Simonson.
Enhanced Cost Tracking: Real-time data on material prices and expenditures enables quicker, more informed decisions.
Despite a slight increase in backlog to 8.5 months, Basu warns, “These tariffs have already materially diminished the outlook for construction activity in 2025. Many businesses are poised to delay or even cancel planned capital investments given the current business environment and daily market convulsions”.
Paragon’s Perspective: Building Predictability in Uncertain Times
Our experience shows that the right strategies can help maintain confidence and project momentum:
Adjust contracts to share risk and allow for flexibility.
Stay agile in procurement and design, ready to pivot as market conditions change.
Communicate proactively with all stakeholders to manage expectations and align on solutions.
As Basu concludes, “Conditions will likely deteriorate further if elevated tariff rates remain in place for any meaningful length of time”. At Paragon, we help clients build resilience into every project.
