The construction industry is navigating a transformative period, with both significant growth and unprecedented challenges shaping its future. In 2024, U.S. construction spending surged to nearly $2 trillion, marking a 6.5% increase from the previous year. However, firms continue to struggle with material shortages, labor gaps, and supply chain disruptions. These operational hurdles are compounded by tightening regulations, heightened liability exposures, and escalating insurance costs.

As we step into 2025, new economic and environmental uncertainties threaten to reshape the industry’s risk landscape. Factors such as inflationary pressures, contract disputes, extreme weather events, and legal complexities require proactive measures from construction leaders to safeguard their projects and financial stability.

Economic Pressures & Rising Costs

Inflation & Material Cost Challenges

Despite the slowdown in inflation since its 2022 peak, construction material prices remain volatile, placing financial strain on firms across the sector. While many construction leaders have adjusted bids and pricing models to counteract rising expenses, subcontractors and suppliers are also grappling with financial difficulties. This increases the risk of bankruptcies, supply chain disruptions, and costly project delays.

"If a key vendor or subcontractor fails mid-project, your firm could face costly delays, contract disputes, and legal challenges."

Risk Mitigation Strategies

• Conduct regular financial stability assessments for vendors and subcontractors.
• Utilize fixed-price contracts to minimize exposure to price fluctuations.
• Adjust builder’s risk insurance limits to accommodate rising material costs.

Workforce Shortages & Increasing Wages

The National Association of Home Builders (NAHB) estimates that the construction sector will require an additional 720,000 skilled workers in 2025. As a result, firms are increasing wages and investing in workforce development programs. In 2024, industry wages rose by 4.3%, further driving up operational expenses and insurance costs.

Risk Mitigation Strategies

• Expand apprenticeship and workforce development initiatives.
• Implement enhanced safety training to reduce workplace injuries.
• Improve worker retention through competitive benefits and career advancement opportunities.

Supply Chain Disruptions

Although pandemic-related supply chain bottlenecks have subsided, new challenges have emerged. Global trade disruptions, cyber threats targeting suppliers, and severe weather events continue to impact material availability. In addition, rising fuel costs and transportation issues further complicate project timelines and budgets.

Risk Mitigation Strategies

• Diversify supplier networks to avoid reliance on single sources.
• Stockpile essential materials to create a buffer against shortages.
• Strengthen contract terms to include protections against unforeseen delays.

Legal & Compliance Challenges

Evolving Building Safety Regulations

A series of high-profile structural failures, including the Grenfell Tower fire and the Surfside condo collapse, have led to more stringent building codes. Regulators now demand stricter material standards, enhanced safety documentation, and heightened accountability from developers and contractors. Insurance companies are also tightening underwriting requirements to align with these regulatory changes.

Risk Mitigation Strategies

• Stay informed about evolving safety codes through legal consultations.
• Conduct regular site inspections to ensure compliance.
• Invest in sustainable and resilient building materials.
• Maintain detailed documentation of safety measures to support insurance claims.

Contract Disputes & Insolvency Risks

The financial instability of subcontractors and vendors has led to an increase in contract disputes and legal battles. Insolvencies and defaults can stall projects, lead to unpaid invoices, and expose firms to liability claims.

Risk Mitigation Strategies

• Strengthen contract language to define liability and insolvency risks.
• Require performance bonds from subcontractors.
• Monitor the financial health of key partners and diversify business relationships.

Rising Insurance Costs & Claims

The Impact of Nuclear Verdicts & Social Inflation

Explore key challenges facing the construction industry in 2025, from rising costs to legal risks, and discover effective risk management strategies to safeguard your projects.

The construction industry has seen a surge in nuclear verdicts (jury awards exceeding $10 million), with a 27% increase in 2023. These large payouts, fueled by growing corporate distrust and litigation funding, have driven up insurance costs.

Risk Mitigation Strategies

• Implement comprehensive job site safety measures.
• Use contractor-controlled insurance programs (CCIPs) to streamline coverage.
• Maintain thorough documentation of safety protocols and compliance efforts.
• Review contracts carefully to define liability responsibilities.

Construction Defects & Disputes

Poor workmanship, structural flaws, and safety violations contribute to rising litigation and insurance costs. Economic pressures exacerbate these disputes, leading to increased contract defaults and project cancellations.

Risk Mitigation Strategies

• Enforce rigorous quality control procedures.
• Invest in professional liability insurance.
• Train workers on proper construction techniques.
• Strengthen contract terms to define liability and resolution strategies.

Environmental Risks & Natural Disasters

Extreme Weather & Construction Exposure

The U.S. experienced 27 billion-dollar weather disasters in 2024, making it one of the most destructive years on record. These events increase workers’ compensation claims, raise insurance premiums, and limit coverage availability in high-risk regions.

Risk Mitigation Strategies

• Secure materials and equipment in weather-resistant storage.
• Use climate-resilient building materials.
• Develop emergency response plans to minimize operational disruptions.

Looking Ahead: Protecting Your Construction Business in 2025

The construction sector faces an evolving risk landscape, from escalating insurance costs to regulatory shifts and supply chain challenges. Proactive risk management is essential for ensuring long-term success. Our team of construction advisors is ready to help you navigate these uncertainties with industry-specific solutions. Connect with us today to safeguard your business in 2025 and beyond.

Originally reported by CBIZ.