Construction costs have risen significantly in recent years. Since the end of 2020, the average cost of building materials has increased by roughly 40%—just as importantly, those increases have been uneven and difficult to predict.
Why construction costs keep fluctuating
The cost of construction materials and labor spiked during the Covid-19 pandemic, but volatility has continued well beyond it. A range of factors—including tariffs, global conflicts, and supply chain pressures—continue to drive rapid changes in both material and labor costs.
For example, under the current administration, duties on Canadian lumber increased to 45% and duties on steel and aluminum increased to 50%. After the Supreme Court struck down most of these tariffs in early 2026, the administration implemented new 10% tariffs on foreign goods.
Recent conflicts have also caused significant increases in constructions costs. Since the U.S. began operations in Iran, the cost of liquid asphalt in Maine has increased by 6%, and in one recent month alone, the cost of bitumen—a key petroleum-based product in asphalt—increased by more than 30%.
New government data recently released by two trade organizations, the Associated General Contractors of America (AGC) and Associated Builders and Contractors (ABC), shows that the past year has seen the largest increase in construction costs since the Covid-19 pandemic. Even if recent de-escalations in the conflict prevail, it remains uncertain how and when construction costs will change in the future, but it is certain that they will continue to change.
Planning for cost uncertainty
What can construction industry professionals do to prepare for future changes in construction costs? The answer is straightforward: plan for uncertainty from the outset. Accept that unpredictability and volatility are now part of the process, and account for these variables in contracts and planning processes.
Rethinking contract terms
Contracts are one of the most effective tools for managing cost risk, but many standard provisions were developed for a more predictable market.
Here are some things to consider:
- Boilerplate contract provisions that many people have relied on for years may be inadequate to address current uncertainty.
- Construction and procurement contracts can establish pre-agreed, clearly defined procedures to adjust to future volatility, and assign risk for price escalation.
- There are processes that reward collaboration and can help avoid future conflict. For example, shared-savings provisions, permissive rights to substitute like-kind materials, grace periods for liquidated damages, and early completion incentives.
Planning for disputes—not just avoiding them
Even well-planned projects will encounter challenges. As the saying goes, even the best laid plans of mice and men often go awry. Because of that, it is just as important to prepare for how disputes will be handled if they arise—particularly disputes tied to unexpected cost increases. One increasingly important tool is alternative dispute resolution (ADR).
Making ADR part of the process
ADR works best when it is treated as a standard part of project planning, not a last resort. That includes:
- Establishing ADR procedures with project partners early;
- Ensuring that all stakeholders—including insurers and sureties—understand the process; and
- Using ADR not only for major disputes, but also for smaller issues before they escalate.
Taking these steps can help projects stay on track and prevent cost-related disagreements from becoming larger conflicts.
Key takeaways for construction professionals
Cost volatility is no longer an exception—it is a defining feature of the current construction landscape. Owners, contractors, and developers who acknowledge this reality and plan accordingly will be better positioned to manage risk and achieve success.
By building flexibility into contracts, encouraging collaboration, and establishing clear processes for resolving disputes, project teams can reduce uncertainty and keep projects moving forward—even when costs are anything but predictable.
Samuel X. Frank is a construction and real estate litigation attorney who represents clients in complex disputes, combining analytical rigor, clear communication, and creative problem-solving to develop effective, strategic resolutions. He can be reached at [email protected].
Bernstein Shur’s Construction Law Group helps developers, contractors, and construction professionals manage risk and keep projects on track at every stage of the project lifecycle. The group provides sophisticated legal solutions spanning contract negotiation, project administration, dispute avoidance, and litigation, drawing on deep experience in the construction industry.