Brace for Impact: How Construction Companies Can Prepare for the Tariff Squeeze

While American businesses have temporarily escaped the threat of tariffs, the market is still tense. As businesses wait for the other shoe to drop, construction firms should act now to prepare for what’s to come. The key: Reassess every part of your business plan. 

Though the Trump administration has granted a 90-day reprieve on most of the proposed tariffs, steel and aluminum—two of the most vital materials in any construction project—still face a 25% hike. 

These tariffs threaten everything from ductwork to rebar, meaning no one will be immune to their impacts. Whether you’re a home building company owner, a general contractor, or a subcontractor—especially those in particularly material-intensive fields like mechanical, electrical, and plumbing—we’re all going to feel the squeeze. 

The projected impact of these tariffs on construction projects is significant; some projects may see an 8% increase in costs. And this is all before the tariffs on other critical materials take effect. 

There’s Time to Prepare for Tariff Price Increases—Use It

Whether or not the Trump administration backs off from its broader tariff threat remains to be seen, but construction firms should be preparing for all eventualities right now. This isn’t the first time the construction industry has had to manage operations within an environment rife with supply-chain disruption. The last time Trump imposed tariffs in 2018, the industry was caught flat-footed, and the jump in prices pushed many contractors to the brink of insolvency. 

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The experience of managing supply chain issues from the last go-around, combined with the forewarning, and now pause in tariffs, is providing companies with time to prepare for these increases. This should help construction firms manage some financial stress. Lessons have been learned, and there are strategies innovative firms can implement to come out the other side in a healthy spot. 

4 Things Innovative Construction Companies Can Do to Offset the Effects of Tariffs

1. Examine contract language

“Force majeure” clauses in contracts are often considered for natural disasters or some other dramatically unexpected event. Still, force majeure can usually include government action—and the tariffs certainly qualify. 

Now is the time to meet with legal counsel to prepare your position within the contract’s language. If costs look like they’re going to increase, or some other delay occurs because of the tariffs, a force majeure clause should be used as leverage to get contracts back to the negotiating table to reach a resolution.

To the extent that contractors are entering into new projects, force majeure clauses may not be enough, since the tariff position is known. Savvy construction firms should look to build and incorporate new tariff-specific clauses to address this matter.

2. Rethink procurement

Companies need to be creative in times of hardship, especially when finding ways to save money. By becoming more strategic, companies can preserve cash, especially in a process such as procurement. 

Minimize storage costs and cash exposure by arranging just-in-time delivery and getting materials right before they’re needed. Rather than paying a markup from a sub-vendor, consider buying raw materials and assembling parts in-house, absorbing the labor costs rather than paying a more-than-normal markup. Alternatively, businesses can seek alternative suppliers domestically or look to source materials from lesser-tariffed countries.

3. Tighten inventory management

It’s a reality of construction: Some materials end up “walking off the job.” Firms are used to absorbing the cost of these lost materials and planning for it in their price forecasting. But with costs increasing, that’s not a luxury companies should afford themselves anymore. Tight inventory control systems can track down materials all the way to the individual screw, helping to prevent waste, theft, and superfluous costs.

4. Break down budgeting

Companies must work together to navigate this tariff crunch, and leadership plays a significant role in facilitating that. Companies should use this 90-day reprieve to hold cross-functional meetings between their finance department and project managers.

Budgets need to be worked through job by job and in their day-to-day jobs. These groups need to be attached at the hip, keeping costs in check while improving the cash-flow modeling of the firm overall to know exactly when external financing may be needed. 

Company owners must remember that construction firms don’t go out of business because of a lack of revenue but because of a lack of cash. Taking on risks by pursuing unprofitable margins will not lead to long-term success.

And What About the Possible Longer-Term Effects of Tariffs?

Economic uncertainty in the current market is also causing concern among construction firms for the long term. Recession fears—whether a full recession ever materializes or not—will compound existing problems, with some clients canceling or delaying projects. For instance, a $300 million recycling plant project in Pennsylvania was just scrapped, in no small part because of projected cost increases due to tariffs.

There will be fewer projects and more bids on the projects that remain. A bidding race to the bottom will kick-start economic Darwinism that will inevitably push some smaller firms out of the market as larger firms leverage their size to cut margins. 

Navigating this period will be tough, and construction firm owners must remember that firms don’t go out of business because of a lack of revenue but because of a lack of cash. Taking on risks by pursuing unprofitable margins will not lead to long-term success. 

Now is a time when the construction industry needs to lean on itself, stay educated, and connect with industry associations and peers to determine whether there’s a political strategy they should pursue or best practices that can help them.

The tariffs will hurt, but innovative strategies can help companies succeed.