This article was originally published on 7/23/2025 in Business North Carolina magazine.
Like most of the economic world, the design and construction industry is facing some serious challenges right now, thanks to market shifts driven by new tariffs. More than 45% of imported construction materials are affected, and that’s making costs climb. While there’s still a strong interest in new projects, this persistently high level of uncertainty in the economy and politics is making investors hesitant to commit. Some relief could come from potential incentives for domestic production, but shifting to U.S.-based manufacturing brings its own set of challenges—mainly, whether manufacturers can keep up with demand without major supply gaps.
At the same time, foreign manufacturers, especially in the auto sector, are pouring money into building new facilities here in the U.S., which adds another layer to the evolving supply chain landscape. Suppliers have already started increasing prices in anticipation of these tariffs, meaning the first wave of impact is already underway. If history repeats itself, we might see short-term panic buying, similar to what happened during the COVID-era supply chain crisis—followed by a stabilization period once the dust settles.
In January, construction prices increased 1.4% in a single month, the largest spike in two years. Construction cost increases have been predicted to be between 5% to 7% in 2025, and through June of this year, that increase is tracking at 2.1%/ The price hikes aren’t hitting only structural materials like iron, aluminum, and cement either; they’re also affecting finishing materials like tiles and mirrors. All of this puts pressure on budgets, making careful planning more important than ever.
HOW THIS IS AFFECTING DESIGN AND PLANNING
The Architectural Billing Index is reflecting growing concerns across the industry, and managing these cost swings during the design phase is becoming increasingly difficult. Traditionally, budgets are finalized once the design is complete, but in today’s environment, that’s no longer realistic. Pricing fluctuations are happening so fast that waiting until the end of a design phase could result in major budget surprises. Instead, we need to factor in cost shifts earlier in the process to avoid unexpected overages.
Some of these price increases affect core structural materials, which could directly impact the way buildings are designed. This means architects and developers need to be prepared to adjust, whether it’s switching materials, tweaking plans, or altering project timelines to better navigate pricing challenges.
HOW WE CAN HELP OUR CLIENTS NAVIGATE THIS UNCERTAINTY
Given all the unpredictability, we need to help our clients make informed decisions and find ways to minimize risk. Here are a few strategies we can use:
- Rethinking Contracts
Fixed price and Guaranteed Maximum Price (GMP) contracts don’t allow much room to handle sudden price jumps due to tariffs. Encouraging our clients to explore flexible contract structures that allow for cost adjustments based on market shifts may be a way to manage risk in the short term. - Resequencing Construction Phases
Adjusting the order of work can help soften the impact. For example, securing materials that are least affected by price hikes first could stabilize costs and create a buffer against future volatility. Many have adopted this strategy already for large equipment and early material purchases. - Taking a Phased Approach
Breaking projects into smaller sections can provide better budget control. Instead of committing to everything upfront, phasing allows for periodic cost reviews and gives stakeholders a chance to adapt before moving forward. - Holding Larger Contingency Funds
Given how quickly prices are shifting, keeping higher contingency reserves for longer periods ensures flexibility when sudden cost increases hit. It’s better to be prepared than to scramble when adjustments become necessary. - Sharing the Risk
Contract terms can be adjusted to spread out cost increases. For example, agreements could state that the owner absorbs a certain percentage of material price hikes while the contractor takes on costs beyond a set threshold. This helps prevent either party from taking the full financial hit when costs rise unexpectedly.
WHAT’S AHEAD
Navigating this volatile market requires strategic thinking, early planning, and adaptability. By incorporating cost assessments earlier in the design process, making smarter contract decisions, and taking a phased approach, we can help our clients maintain stability while keeping projects on track. The ability to stay ahead of economic uncertainty is what separates the industry’s leaders from the rest—and with the right approach, we can ensure long-term success despite these challenges.
