Navigating tariffs and supply chain challenges in construction

ARTICLE | June 16, 2025

Authored by RSM US LLP

Tariffs and rising prices will impact segments of the construction industry differently, but no sector is immune from disruption when input costs increase. Homebuilders are working to close the affordability gap via tactics like focusing on smaller, more efficient homes, modular construction and leveraging financial incentives. Privately funded commercial projects remain sensitive to valuation drops caused by rising interest rates, subdued office lease demand and shifting retail behaviors. Meanwhile, publicly funded infrastructure projects face growing scrutiny as deficit reduction and rising debt levels reshape funding models.

According to the RSM Supply Chain Special Report 2025: U.S. and Canada, middle market firms are operating in a landscape marked by persistent volatility, a need for stronger supplier visibility and a growing demand for integrated risk management—and construction firms are no exception. The report notes that 74% of middle market executives cite geopolitical conflict, including tariffs, as a significant risk to their supply chains. For construction firms, this translates to price fluctuations in key materials such as steel, aluminum and lumber, making procurement strategy a critical competitive lever. In addition, supply chain digitalization and scenario planning are no longer aspirational; they are essential.

Below are recent questions from construction clients on navigating the impact of tariffs on their supply chains, along with actionable insights from RSM US LLP advisors.

How should we prepare for potential cost increases in key construction materials?

Joe Barbalaco, a manager in management consulting at RSM, sees a focus on forecasting, communication and relationships as key in times of uncertainty to help avoid surprises within your firm's control. He suggests running a sensitivity analysis on current and upcoming projects to assess how margin would shift with changes in key material prices. While it is always good practice to seek guidance on how to take advantage of opportunities and mitigate threats to your business, working with an experienced advisor is even more critical in times of increased uncertainty.

What contractors can do now:

• Ask your suppliers for their forecasts on material input prices that could impact your upcoming projects.
• Lock in long-term contracts with suppliers, where applicable, to purchase materials at prices that your margin can bear today.
• Diversify the procurement function through relationships and forecasting with multiple suppliers, including local and regional suppliers.
• Review inventory management strategies and revisit escalation clauses in current agreements to manage volatility and spread its impact.
• Communicate with subcontractors to understand the pressures they are facing and how they are managing them, and identify hurdles you can overcome together.
• Talk to your bank to secure and protect funding capacity, such as lines of credit, to enable your firm to deal with surprises.
• Connect with your accounting firm and bonding company about your balance sheet and run best-case and worst-case scenarios to prepare for a variety of outcomes.

Should we be making changes to our contracts in light of tariff uncertainty?

Contractors should be proactive in managing price increases and communicating with owners and subcontractors. Uncertainty surrounding material prices and material availability is not new to contractors who survived the COVID-19 pandemic and, in many cases, thrived. Price escalation clauses received much focus during the pandemic, and it is time to review and revisit those provisions and perhaps build on them.

David Luker, a partner in risk consulting at RSM, has seen contractor projects put on hold and notes that governmental grant funding for a project can be at risk if delays push past the grant’s expiration date. He sees delays not only in routine areas such as permitting and environmental approvals, but also due to the broader uncertainty around material prices and job economics.

Luker recommends contract provisions that account for material price fluctuations in both directions to incentivize both the project owner and contractor. One approach is to establish a material price escalation fund, which would release funds to contractors in documented cases of price increases and return funds to the owner when prices remain stable or decline. This arrangement would function similarly to an allowance or contingency account. In Georgia, the Governor’s Office of Planning and Budget, in collaboration with RSM and the Georgia Department of Transportation, created a grant program to support highway contractors affected by pandemic-related material price escalations.

How do tariffs impact our financial reporting and planning?

A recently issued RSM accounting brief highlighting the financial reporting implications of tariffs discusses considerations that apply to construction firms. Potential business responses include supply chain modifications, pricing adjustments, revised asset use and altered investment strategies.

The brief highlights several key accounting areas affected by tariffs. Under Accounting Standards Codification (ASC) 275, contractors may need to disclose estimates and certain concentrations of labor, particularly as changing tariff policies affect total estimated job costs. Firms using the percentage-of-completion method under ASC 606 may need to revisit revenue recognition estimates, especially if rising costs push a contract into a loss position, requiring immediate recognition.

Tariff-driven price increases may also trigger questions about whether adjustments should be treated as variable consideration or contract modifications under ASC 606. Other considerations include asset impairment (due to reduced future cash flows), potential impairment of deferred tax assets, and the use of hedge accounting strategies.

What kinds of technology investments can help us weather these challenges?

Firms that leverage technology to harness internal and external data for agile decision making are better positioned to navigate uncertainty. Critical questions for construction leaders include: Which projects, teams or clients are performing best? Where can the organization create the most value?

Barbalaco notes that an enterprise resource planning system and project management software that align seamlessly with your business’s specific needs are essential for tracking inflows, outflows and true project profitability. The right solution depends on your firm's size and complexity; however, the key is to maximize the value of whatever system you choose.

Equally important is having strong data governance in place to ensure that data is accurate, consistent and accessible across systems and teams. Without a clear data governance framework, contractors risk making decisions based on incomplete or conflicting information, especially when dealing with multiple projects and external providers.

While large language models (LLMs) are increasingly common and offer significant productivity gains, firms must take the time to understand how employees are using public tools and establish internal policies to protect privacy and intellectual property. Investing in a firm-specific LLM may further enhance productivity while maintaining control over sensitive data. The overarching theme around technology investment is organizing the data your firm is generating and enabling analysis that leads to faster and better decision making.

The takeaway

As tariffs, inflation and geopolitical risks continue to disrupt supply chains, construction leaders face mounting pressure to adapt. Success in this environment will depend on proactive planning, agile decision making and having a firm grasp of evolving financial and operational realities, from contract terms and cost forecasts to accounting standards and digital strategy.

While no single solution can eliminate uncertainty, the right advisor can help you manage it. Look for a service provider who understands the nuances of construction and can help position your firm for resilience and growth in the face of continued disruption.

Contact your advisor with any questions about this article.

This article was written by Mac Carroll, David Luker and originally appeared on 2025-06-16. Reprinted with permission from RSM US LLP.
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