Danielle Kaiser is an attorney at Kansas City, Missouri-based law firm Spencer Fane. Opinions are the author’s own.
Several forces are expected to make construction especially challenging in 2026, including cost, labor, regulations and project delivery. These issues will affect owners, contractors and trades across both vertical and horizontal work.
Cost pressures
Material costs for steel, concrete, lumber and key mechanical/electrical components are projected to stay elevated or rise again due to tariffs and supply volatility, keeping bids and change orders high. That could lead to an increase in contract disputes, particularly in long-term projects, which are harder to predict and control. More conflict means even more cost in terms of legal expenses and higher insurance premiums.
Government job and spending cuts portend a sluggish 2026 with regard to federal projects. Major cities across the United States are also reporting flat revenue going into 2026, which is a significant change following the COVID-relief years. As a result, municipalities are proceeding with caution, only taking on construction projects that are necessary to continued operations.
In the private sector, tighter lending standards (combined with only gradual easing of interest rates) are expected to constrain project financing and squeeze contractor margins, especially in the commercial and residential sectors.
This tighter environment means increased scrutiny and documentation, higher equity contributions, larger contingency reserves, stronger borrower profiles, emphasis on specific asset classes, technological integrations and a focus on sustainability. These lender requirements are especially prevalent with larger, traditional banks, causing a shift to private credit, which offers more flexibility — but often at a premium interest rate.
Policy, tariffs and public funding
Tariff uncertainty and trade policy are expected to keep input prices volatile and complicate long-term contracting. Construction contract language is evolving to contemplate tariff-adjustment or escalation clauses, which operate to pass those costs directly to the owner. On the public side, major infrastructure and energy-related programs such as the Infrastructure and Jobs Act of 2021 face sunset dates and potential federal spending cutbacks in late 2026, creating risk for firms heavily reliant on government work and requiring more careful backlog and cash‑flow planning. Nevertheless, current trends suggest the need for institutional, infrastructure, data centers and certain energy projects remains relatively stable.
Labor shortages
The industry continues to face a severe shortage of skilled craft workers and supervisors, driven by an aging workforce and too few young entrants, with projections indicating a need for hundreds of thousands of additional workers by 2026 in the U.S. alone.
Additionally, construction wages are rising faster than the broader economy, and tighter immigration policy has added more upward pressure. As a result, project costs will go up, schedules will lengthen, and this will make staffing complex projects — data centers, manufacturing, and infrastructure — particularly difficult.
In order to position themselves against the labor and talent shortage, contractors might consider adopting digital tools. That could include BIM, drones, data analytics to control costs and mitigate disputes and leveraging artificial intelligence.
Demand shifts
Forecasts point to sluggish or declining spend in some commercial and manufacturing segments as data centers, energy and infrastructure projects expand. This uneven demand will press contractors to adjust portfolios, pursue new sectors and manage overcapacity or understaffing depending on region and specialty. Data centers and megaprojects are the place to be in 2026, but with that comes increased competition for those jobs, as well as the skilled workers needed to build them.
In response to a continuing housing shortage, reconstruction projects and adaptive reuse are gaining momentum, which attempt to solve the issue of the housing shortage while utilizing underutilized commercial and office buildings. To that end, the ROAD to Housing Act directs HUD to develop best practices to provide municipal governments with options to increase housing at the local level.
Contractors who enter 2026 with a healthy balance sheet and managed liquidity will have the financial flexibility they need to adapt to market volatility and labor shortages while investing in new opportunities. Strategic bidding and the ability to manage material price volatility are of critical importance for contractors to ensure profitability in 2026
