Not long ago, contractors were riding high. Projects were plentiful, and margins were steady. Work seemed predictable. Materials were available, crews were sufficient, and clients were patient. Back then, small delays or unexpected costs could be absorbed without threatening the bottom line. Profits were stable, and companies could focus on growth. Now, in 2025, the environment has shifted dramatically. Rising costs, labor shortages, and unpredictable supply chains are squeezing profitability. The old playbook of raising rates and pushing harder no longer works. Contractors face pressure from all sides. The challenge is no longer just completing projects but protecting margins at every stage.
So, what’s changed?
Inflation is no longer a distant threat. It’s here. Steel prices have surged by 13.1%, copper by 13.8%, and softwood lumber by 5.8%. Tariffs, especially on metals and Canadian lumber, are adding fuel to the fire. Meanwhile, construction activity is slowing, with spending down 3.4% since May 2024.
But it’s not just about materials. The workforce is aging, and fewer young professionals are entering the trade. In the UK, bricklayer numbers are at their lowest since 1998, with 30% set to retire in the next decade.
This shortage is leading to project delays and rising labor costs.
And then there’s the cash flow crunch. Long project cycles, delayed payments, and increased material costs are making liquidity a constant concern.
How can contractors adapt?
It’s time to rethink strategy
1. Smarter Bidding
Gone are the days of blanket markups. Today’s bidding requires precision. Contractors must use historical data and predictive analytics to create accurate estimates. Benchmarking against peers allows companies to understand market rates and avoid underpricing. Dynamic pricing models that reflect real-time material costs and labor availability are becoming increasingly necessary. A contractor who can predict material fluctuations and schedule crews efficiently gains a clear advantage over competitors. Bids now need to be precise, data-driven, and flexible to protect profitability.
2. Portfolio Focus
Not all projects deliver the same value. Contractors must prioritize high-margin or strategically important work. Commoditized projects with low returns can strain resources without improving profitability. Allocating resources to projects that deliver the highest return on investment allows contractors to stabilize margins while building stronger client relationships. This approach requires careful project selection and ongoing evaluation of both current and upcoming projects.
3. Digital Tools
Technology plays a critical role in maintaining margins. Real-time dashboards for cost tracking, labor allocation, and equipment utilization provide visibility that was once impossible. Predictive modeling identifies potential overruns before they happen. Artificial intelligence and other digital tools can highlight inefficiencies or areas of risk across multiple projects simultaneously. Contractors using these tools gain an edge by making timely decisions, reducing delays, and controlling costs more effectively than those relying on traditional reporting methods. Technology does not replace experience, but it amplifies it.
4. Operational Excellence
Efficiency is no longer just about speed. Lean project management and process standardization reduce downtime and eliminate waste. Continuous improvement programs encourage teams to identify and address margin leaks. Even small improvements in workflow or resource allocation can significantly impact profitability. Consistent, well-documented processes ensure that every team member knows their responsibilities, reducing errors and improving overall project delivery.
5. Supplier and Contract Management
Strong relationships with suppliers can lead to better pricing and reliable delivery. Contractors must negotiate long-term or bulk contracts to stabilize input costs. Strategic sourcing reduces dependency on volatile suppliers and ensures project continuity. Including shared-risk clauses or escalation provisions in contracts helps protect margins when costs rise unexpectedly. These practices make the difference between a project that barely breaks even and one that contributes significantly to the bottom line.
6. Workforce Development
Investing in your team is critical. Skilled and experienced employees are irreplaceable. Contractors who provide ongoing training and upskilling opportunities reduce reliance on temporary labor. Retention strategies help keep seasoned professionals engaged, motivated, and productive. A stable, capable workforce ensures that knowledge and best practices are retained within the company, which is essential for maintaining consistent project quality and profitability.
7. Financial Acumen
Understanding the financial implications of decisions is crucial. Professionals who can link field performance to profitability are highly valued. Financial literacy, project analytics, and strategic thinking allow employees to understand how their actions directly affect margins. Those who can combine operational knowledge with financial insight are instrumental in helping companies navigate these challenging times. Their decisions influence not only project success but also the company’s overall financial health.
Two Quick Case Studies
Build Group, a U.S.-based construction firm, utilized AI-powered software to optimize project scheduling and resource allocation. By analyzing various combinations of materials and workforces, the AI solution proposed multiple schedules, enabling the team to select the most cost-effective and timely approach. This strategic use of AI led to a 15% reduction in overall project costs, showcasing the potential of AI in enhancing profitability and efficiency.
Thomas Cavanagh Construction, a Canadian contractor, adopted daily tracking of labor and equipment production using Rhumbix’s platform. This shift from biweekly reporting provided real-time cost insights, allowing for more accurate and timely bidding on new projects. The implementation of this technology resulted in increased productivity and profitability, demonstrating the value of real-time data in construction management.