Tariffs, Steel Prices, and the Contractor's Dilemma: Managing Material Cost Volatility in 2026

If you're a contractor in 2026, your material costs aren't what they were last month. And they probably won't be what you need them to be next month either.

That's not pessimism. It's the new normal. Steel tariffs are at a 40-year high—25% to 30% effective rates on construction goods alone, (K38 Consulting, citing NAHB data). Import duties on steel and aluminum have hit 50%, and the broad 10% tariffs under Section 122 add another layer of unpredictability on top of that. For contractors working on thin margins, this isn't just a line-item problem. It's a business model problem.

The numbers tell the story. US tariff policy alone adds roughly $10,900 to each new home, (NAHB). Project abandonment in the US surged 88.2% year-over-year in August 2025. 53% of US contractors now rank material costs among their top five business concerns, (Sage/AGC, 2026 Construction Hiring and Business Outlook). And when your suppliers are adjusting prices weekly, when fixed-price contracts start looking like a losing bet, when your crew is sitting idle waiting for a steel delivery that's 30% more expensive than your estimate assumed—that's a problem that touches everything.

The construction industry didn't invent this problem, but we're uniquely exposed to it. Unlike manufacturers who can pass costs through quickly or retail firms who can adjust pricing on the shelf, contractors are locked into project timelines, fixed-price bids, and contracts negotiated months before material actually arrives. Add retainage into the picture—where you might not see payment for 60 to 90 days—and material cost volatility becomes a cash flow crisis, not just a margin squeeze.

How Material Cost Volatility Hits Construction Harder

Start with the project timeline. A commercial retrofit takes 18 months. A new residential subdivision takes two years. The tariffs and trade policy that existed when you bid the job are completely different by the time you're buying materials. You either built a 15% escalation clause into your price (and lost the bid to a competitor who didn't), or you absorbed the cost (and lost money).

Fixed-price contracts are the backbone of construction work. They're also the reason material cost volatility feels like playing Russian roulette. When you price a project, you're making a bet about what materials will cost three, six, or twelve months from now. If you're wrong, the difference comes directly out of your profit.

And then there's retainage. In many US contracts, 5% to 10% of project value gets held back and paid 30 to 90 days after project completion. That means you're financing materials, labor, and overhead for months while waiting for final payment. When material costs spike 20% between the start and middle of a project, you're carrying that cash gap on your own balance sheet.

The knock-on effects are visible across the industry. Some owners are postponing projects entirely, waiting for trade policy clarity that may never come. Others are scaling scope down—pulling back finishes, reducing mechanical complexity, deferring system upgrades. A few are cancelling altogether. Deloitte's 2026 E&C Industry Outlook projects only 1.8% growth in structure investment for 2026 after a decline in 2025 (Deloitte, 2026 Engineering & Construction Industry Outlook).

What's Actually Driving the Volatility

Understanding the mechanics helps, even if you can't control them. Steel prices surged 215% during the pandemic and haven't normalized—they're elevated and volatile (Deloitte, 2026 Engineering & Construction Industry Outlook). Diesel fuel, which drives material transport costs, jumped 35% year-over-year as of March 2026 (AAA, Fuel Prices). Then you layer on the tariffs: the 50% on steel and aluminum, the 10% global tariff under Section 122, which doesn't stack on items already under Section 232 but does hit equipment, fabricated assemblies, and manufactured components.

What makes this especially painful is the uncertainty. You're not just dealing with higher costs—you're dealing with not knowing what your costs will be. A supplier who bid you a number two weeks ago might increase it by 12% when you're ready to place the order. Your steel fabricator's lead time just stretched from eight weeks to twelve. Your precast subcontractor is holding quotes for only five days instead of thirty because they can't absorb the price risk.

That unpredictability is as damaging as the costs themselves. It makes cash flow forecasting a guessing game. It makes it harder to bid work confidently. And it makes it nearly impossible to protect your margin if you're managing material procurement the way you did five years ago.

Strategies That Actually Work

What are contractors doing to survive this? Three patterns keep emerging.

First: more frequent re-pricing in contracts. Some firms are moving away from hard fixed-price models and negotiating quarterly adjustment clauses tied to published indices—NAHB Material Costs, RS Means, or producer price indices. It's not a perfect approach, but it shifts some of the tariff risk back to the owner and gives you a tool to adjust for massive swings without eating the entire cost.

Second: better procurement timing and vendor relationships. Contractors who've survived material volatility best are locking in pricing earlier, buying longer-term when possible, and developing tighter relationships with suppliers. If a vendor trusts you as a long-term customer, they're more likely to hold a price or give you a short window to decide rather than moving on to the next bid. It's not glamorous, but it works.

Third: real-time cost tracking that makes price impacts visible immediately. When a vendor raises their price or a delivery gets delayed, you need to know within 24 hours—not when you're reconciling invoices three months later. Ideally, you're tracking every line item of every estimate against actual purchase orders and what you're actually paying. That visibility lets you adjust forecasts before the job gets away from you, raise change orders before project margins evaporate, or make the hard call to renegotiate scope.

That third pattern is where better systems make the biggest difference. If your vendor pricing is isolated in a spreadsheet or your procurement emails, you're always behind. If you're updating your job cost forecast manually, you're updating it based on incomplete information. If your project managers don't see the impact of a 15% price increase until the invoice hits AP, you've already lost the opportunity to manage it.

How NetSuite + FullClarity Helps You Manage This

When material costs are volatile, real-time visibility between vendor pricing and job profitability isn't a nice-to-have. It's how you stay profitable.

FullClarity, built inside Oracle NetSuite, extends NetSuite's standard costing and project accounting with construction-specific workflows that link purchase orders and vendor pricing directly to your job cost forecasts. When a supplier updates their price, that change propagates to your estimate and project budget immediately. When you're deciding whether to proceed with a purchase order, you can see in real time how the vendor price compares to your budget and what the margin impact is.

The Create Order workflow is particularly useful here. Instead of estimators and project managers working from separate spreadsheets, they raise purchase orders directly from estimate lines inside NetSuite, with cost fields auto-populated from the estimate. When vendor pricing diverges from the estimate, the variance is visible to everyone. You can see which line items are at risk, which jobs are being squeezed, and where you need to raise a change order or renegotiate scope. That visibility compresses the decision cycle from weeks to days.

Because everything links back to a single source of truth—your job cost forecast inside the platform—you're not hunting through emails or spreadsheets to understand whether a price increase is killing a project or eating a rounding error.

Looking Ahead

Trade policy isn't stabilizing anytime soon. The Section 122 tariffs expire in July 2026, but whether they get extended, modified, or replaced is anyone's guess. Steel and aluminum are likely to remain volatile. The construction industry's growth is constrained by owner caution and material cost uncertainty.

What that means for your firm is this: resilience now isn't about predicting tariffs or material prices. It's about building the habits and systems that let you respond to price changes faster than your competitors. It's about having real-time visibility into what you're actually paying versus what you budgeted. It's about asking the uncomfortable questions early—can we still deliver this project at the budgeted price? Do we need to renegotiate scope? Can we lock in material pricing now for work six months from now?

The firms that come out ahead won't be the ones who got the tariff forecast right. They'll be the ones who built procurement and job costing workflows that let them adapt when the forecast was wrong.

FAQ

Should I include escalation clauses in all my bids now?

It depends on your market and your customer base. Escalation clauses protect you, but they also make your bid higher and harder to sell. Better approach: use them selectively on longer projects, on jobs where material represents a large portion of cost, or where you have strong owner relationships. On shorter jobs or competitive bids, you might be better off locking in pricing early and accepting the risk.

How do I know if a vendor price increase is temporary or here to stay?

Ask your vendor directly. Most suppliers can tell you whether a price increase is tied to immediate tariff/commodity moves (likely temporary or volatile) or whether it's structural. If they're vague, that's usually a sign they don't know either. For major material categories, follow the published indices—RS Means, NAHB, BLS producer price data—to get a sense of the trend independently.

What if my current software doesn't let me track vendor pricing against job costs in real time?

That's a real constraint. Short-term, you could set up a spreadsheet with jobs, line items, budgeted costs, and actual vendor quotes, then review it weekly with your project managers. It's manual, but it's better than finding out about a $50K price overage when the invoice hits. Longer-term, if your ERP doesn't link procurement to job costing tightly, it's worth evaluating systems that do.

Should I switch to cost-plus contracts instead of fixed-price?

Cost-plus protects you, but it makes you less competitive and puts the risk on the owner. Most private owners prefer fixed price. A hybrid approach—fixed price with quarterly adjustments tied to published indices—gives you some protection without abandoning competitiveness entirely.

How much of a price increase buffer should I build into estimates now?

That depends on your project type and timeline. For a three-month residential job, 5% might be enough. For an 18-month commercial retrofit with heavy mechanical, 10% to 15% is more realistic. The risk is that you'll price too high and lose work or too low and lose money. The better approach is to lock in supplier pricing early, build in an escalation clause, or do both.

Next Step

If material cost volatility is eating your margins, the first step is getting clear visibility into what you're actually paying versus what you budgeted. That might mean setting up a tracking spreadsheet this week, or it might mean evaluating whether your current ERP gives you the visibility you need. Either way, the goal is the same: compress the cycle between when a vendor price moves and when you know it and can act on it.

Start with your current jobs. Pick the three that carry the most material risk, and map what you budgeted for each major material category against what you're actually paying. The gap is your real exposure. Once you understand that, you can start asking the harder questions about how to protect it.