The Construction Industry in 2026: Five Challenges Every Contractor Needs a Plan For

There's no shortage of work in construction right now. In the US, nearly 40% of contractors say their backlog is bigger than it was a year ago (Sage/AGC, 2026 Construction Hiring and Business Outlook). On paper, that sounds like good news.

In practice, it's more complicated. Having a full pipeline and being able to deliver it profitably are two very different things, and right now the gap between those two is wider than it's been in years. Labor is harder to find. Materials cost more and change price without warning. Financing that used to be straightforward is getting pulled or delayed.

While the data in this article is largely US-sourced, the underlying pressures are global. Construction firms in Australia, the UK, and across Europe are dealing with their own versions of the same challenges. The scale differs by market, but the themes are remarkably consistent.

Here are five pressures that keep showing up in every industry conversation this year.

1. The labor gap keeps getting worse

In the US alone, the construction industry needs roughly 499,000 new workers this year, up from 439,000 in 2025 (Deloitte, 2026 Engineering & Construction Industry Outlook). The pipeline isn't close to filling that. By 2031, 41% of the current US workforce is expected to retire. Only 10% of workers are under 25. Just 7% of job seekers would even consider construction as a career (Deloitte).

Immigration enforcement is tightening supply further: one-third of US firms report being directly affected in the past six months, with 24% saying their subcontractors have lost workers (Sage/AGC). US wages are up 4.2% year-over-year (Deloitte, citing Bureau of Labor Statistics), and if the gap persists, the industry stands to lose nearly $124 billion in output from positions that can't be filled (Deloitte).

Here's the practical implication worth sitting with: if your firm's ability to deliver depends on hiring more people, your growth plan is built on a resource that's getting scarcer every year. The firms thinking clearly about this are asking a different question. Instead of "how do we find more workers?" they're asking "how do we get more done with the team we have?" That's a technology and process question, not a recruiting question.

2. Material costs and tariffs are a moving target

In the US, construction goods are now carrying an effective tariff rate of 25% to 30%, a 40-year high (NAHB, cited by K38 Consulting). Current US tariff policies add approximately $10,900 to the price of each new home (NAHB). More than half of US contractors rank material costs among their top five concerns (Sage/AGC).

But the unpredictability is worse than the cost itself. Tariff positions have shifted repeatedly, and there's no clear signal on what rates will apply six months from now (AIA, Consensus Construction Forecast, January 2026). When you're pricing a 12-to-18-month project, that uncertainty is brutal. US project abandonment surged 88.2% year-over-year in August 2025 (K38 Consulting). Projects aren't just getting more expensive. Some are stopping altogether.

The firms managing material cost risk most effectively aren't just the ones with better supplier relationships. They're the ones who can see the cost impact on their active projects in real time, adjust forecasts, and make informed decisions about whether to absorb costs or pass them through. If you're finding out about cost overruns at month-end, you've already lost the window to do anything about them.

3. Project financing has become a bottleneck

In the US, over 63% of firms reported that a project was postponed, scaled back, or cancelled within the past six months (Sage/AGC). Not because demand disappeared, but because financing got harder. US interest rates remain stubbornly high (AIA, Consensus Construction Forecast), commercial construction declined about 8.2% year-over-year by July 2025, and manufacturing fell 7% (Deloitte, citing Census Bureau).

Backlogs look healthy, but the projects inside them are fragile. Lenders are cautious. Owners are re-evaluating scope. Contractors are caught in between, with crews committed to work that might not proceed on the original terms.

In a tighter financing environment, the firms that can demonstrate clear financial control and produce accurate, real-time reporting are the ones that get funded. Your ability to show exactly where a project stands financially, at any point, is becoming a competitive advantage in winning and keeping work.

4. Economic uncertainty is shaping every decision

When the Sage/AGC survey asked US contractors to name their top concern for 2026, the answer was economic uncertainty, selected by 62% of respondents. Five market segments now have negative growth expectations, up from two a year ago (Sage/AGC). Retail, private office, and hotel construction face the toughest outlook.

Data centers are the exception, with a US net growth reading of 57% (Sage/AGC). But that work is concentrated among specialized firms. For the typical mid-market contractor, the mood is considerably more cautious.

The firms handling this best aren't the ones with the best crystal ball. They're the ones who can answer "where do we actually stand right now?" with real numbers, not month-old reports.

5. Technology adoption is no longer optional

McKinsey has estimated that construction productivity globally could jump 50% to 60% with the right technology. The World Economic Forum puts the potential savings from full-scale digitization at $1.2 trillion worldwide.

US contractors are paying attention: 61% of firms now use or plan to increase AI investment, up from 44% last year (Sage/AGC), and 87% believe AI will meaningfully change their business (Dodge/CMiC, AI for Contractors Report). But only 27% of AEC professionals globally actually use AI in their operations today (ASCE, citing Bluebeam).

The 61% adoption number sounds impressive, but it's worth being honest about what it includes. For most firms, "AI investment" currently means someone on the team is using ChatGPT. That's a start, not a strategy. The firms getting real value are the ones who fixed their data foundations first. If your job costs, billing, schedules, and change orders live in separate systems, no AI layer on top will fix the underlying visibility problem. The foundation comes first.

What connects all five

These challenges feed into each other. Labor shortages push wages up, which squeezes margins, which makes accurate cost tracking critical, which requires better systems, which are hard to implement when you can't find enough people to manage the change.

If you take one thing from this article, let it be this: the common thread in all five challenges is visibility. Firms that can see what's happening across their projects in real time can respond. Firms that find out at month-end can only react. That gap between responding and reacting is where margins go to die.

For construction and fit-out teams running on NetSuite, that's where Construction for NetSuite makes a practical difference. FullClarity is built inside NetSuite and extends it with the workflows these firms actually need: job costing, progress billing, retainage, change orders, and WIP reporting, all connected inside the system of record. NetSuite + FullClarity gives firms a single platform for both business management and project management, which is exactly the kind of consolidation that makes real-time visibility possible.

It won't make the pressures disappear. But it's a lot easier to respond to them when you're not flying blind.

If any of these challenges are on your radar and you'd like to compare notes, we're always happy to talk through what we're seeing. Get in touch.

Frequently Asked Questions

What are the biggest challenges facing construction in 2026?

Five pressures stand out: a deepening labor shortage (499,000 new US workers needed), material cost volatility driven by tariffs at 40-year highs, tightening project financing, broad economic uncertainty, and the growing need to adopt technology. While the data here is US-focused, these pressures are affecting construction firms globally.

How serious is the construction labor shortage?

In the US, the industry needs roughly 499,000 new workers this year, 41% of the workforce is heading toward retirement by 2031, and just 7% of job seekers would consider construction. Immigration enforcement is tightening supply further. Similar workforce pressures exist in Australia, the UK, and across Europe.

How are tariffs affecting construction costs?

US construction materials face a 25 to 30% effective tariff rate, the highest in 40 years, adding about $10,900 to each new home (NAHB). The bigger issue for contractors everywhere is unpredictability: shifting trade policies make pricing multi-month projects extremely difficult.

Should construction firms invest in AI right now?

Interest is high, but only 27% of AEC professionals globally are actually using AI today. The most practical first step isn't an AI tool. It's getting your data connected: job costs, billing, schedules, and change orders in one place. That foundation makes everything else possible.

Are there any bright spots in the 2026 outlook?

US data center construction is surging with 57% net positive growth. Nearly 40% of US contractors report bigger backlogs than last year. And firms running NetSuite + FullClarity are finding they can grow project capacity without proportionally increasing headcount.