The Two-Speed Construction Market: What It Means If Your Firm Isn't Building Data Centers

The headline number is a four-year low. The ABC Construction Backlog Indicator fell to 8 months in January 2026, the weakest reading since before the post-pandemic surge (Associated Builders and Contractors, Construction Backlog Indicator, January 2026). On its own, that sounds like a story about a construction market running out of steam.

But that headline is doing a lot of work to hide a two-speed market split underneath. Some contractors are having their best years on record. Others are watching their pipeline thin out while costs stay stubbornly high. Understanding which side of that divide you're on, and why, matters more right now than most industry conversations acknowledge.

The two-speed divide is real and growing

Firms with more than $100 million in annual revenue reported their highest backlog readings since 2021, at 14.2 months (ABC, Construction Backlog Indicator, late 2025). Small and mid-market firms (those under $30 million in revenue) reported 6.7 months, their lowest reading in the same period.

The gap between contractors with data center work and those without is similarly stark. Firms with data center projects on their books were carrying 11.2 months of backlog. Those without: 7.6 months (Construction Dive, citing ABC data, February 2026).

So when the industry average comes in at 8 months, it's an average of very different realities sitting side by side.

Why data centers are distorting the picture

US data center construction starts in 2025 are expected to exceed $60 billion, more than double the annual average recorded since 2021 (ABC, citing Dodge Data). The AI infrastructure build-out is driving demand that most construction markets haven't seen in a generation, and it's heavily concentrated among large specialist contractors.

Sixty-five percent of contractors expect the data center market to expand further in 2026, versus only 8 percent who expect it to shrink (AGC, 2026 Construction Hiring and Business Outlook). That's an extraordinary level of consensus about where the work is.

The flip side: local governments are pushing back. Twenty-six data center projects were cancelled in December 2025 and January 2026 alone (Construction Dive, February 2026). Even in the hottest sector of the market, there's friction.

But for the typical mid-market contractor (the commercial builder, the fit-out specialist, the residential firm, the general contractor managing mixed-use development), data centers are largely someone else's opportunity.

What's actually happening in the rest of the market

The Dodge Momentum Index, which tracks the pipeline of planned commercial and institutional construction, declined 7.3% in February 2026 (AGC Data DIGest, March 2026). Construction employment fell by 11,000 jobs in February, though it remains 42,000 ahead of a year ago.

More telling is what contractors are saying about competition. More firms are chasing a little less work. Bidding is tighter. Margins that had some breathing room two or three years ago are compressing.

For the sectors where most mid-market firms live (commercial, healthcare, education, retail, multi-family residential), growth expectations for 2026 range from modest to negative. Contractors are most pessimistic about private office, lodging, and retail construction (AGC, 2026 Hiring and Business Outlook). Manufacturing construction, which drove significant activity in 2024 and 2025, has softened.

Water and sewer infrastructure, healthcare, and select public-sector work are holding up better. But the overall picture for firms not plugged into the data center or power infrastructure boom is meaningfully different from what the headlines suggest.

Costs aren't cooperating

Here's the part that makes a tightening market particularly uncomfortable: input prices are not falling along with demand.

Construction input prices rose at a 12.6% annualized rate during the first two months of 2026, according to ABC's analysis of Bureau of Labor Statistics producer price index data released in March. Year-over-year, costs were up 3.7% from February 2025. The material-specific numbers are harder: aluminum mill shapes up 33%, steel mill products up 20.7%, copper and brass mill shapes up 15.7% (ABC, March 2026). The full picture of 2026 construction cost pressure, covering fuel, metals, and tariffs, has been the biggest structural force on margins this year.

Seventy percent of AGC survey respondents reported being affected by tariffs in 2026. Forty percent have raised bid prices. Twenty percent have added price-sharing clauses to new contracts (AGC, 2026 Hiring and Business Outlook).

Those price-sharing clauses reflect something important: the unpredictability of material costs is as damaging as the costs themselves. When you're pricing a 12-to-18-month project and the tariff rate on steel might be different six months from now, you can't quote a fixed price with any confidence.

What this means in practice

A two-speed market creates a specific risk for mid-market firms that doesn't get discussed enough: the temptation to win work at margins that don't actually cover the risk.

When competition intensifies, the pressure to sharpen bids increases. Firms watching their pipeline thin out start accepting jobs they might have passed on two years ago. And if your cost control mechanisms aren't tight, if you're not tracking actual vs. estimated costs in real time, the first sign that you underbid often comes at month-end, when it's too late to do anything about it.

This is the pattern that tends to precede construction firm failures in soft markets. Not bad luck. Not impossible projects. Just a steady accumulation of small decisions to accept thinner margins, made without the visibility to understand how thin things had gotten.

The firms that navigate a tighter market without giving up their financial position are the ones who know their numbers. Not their month-old numbers. Their current numbers. Which projects are tracking ahead of budget. Which are already behind. Where the change orders are sitting that haven't been priced yet. What the true cash position looks like across the next 90 days.

Getting more from the work you win

There's a constructive response to a two-speed market that doesn't involve chasing data center work you're not equipped to do, or bidding lower to stay busy. It's improving your ability to execute the projects you're already equipped to win, and making sure you're actually capturing the margin you built into the price.

That means tightening your estimating and tracking the relationship between estimates and actuals as a project unfolds. It means managing change orders actively, not retrospectively. It means billing on time, tracking retainage, and forecasting cash accurately enough to know when you need to push for earlier payment.

For construction and fit-out firms running on Oracle NetSuite, that's where Construction for NetSuite makes a practical difference. FullClarity is built inside NetSuite and extends it with construction-specific workflows: job costing, progress billing, AIA billing, retainage, change orders, and WIP reporting, all connected inside the same system where the accounting lives. NetSuite + FullClarity means project managers and finance teams are working from the same numbers, updated in real time, without reconciling reports from different systems at month-end.

It won't generate new projects in a competitive market. But it does help you protect the margin on the ones you win, which, in a tighter market, is exactly where the pressure is highest.

Looking ahead

The two-speed divide isn't going away quickly. The data center build-out is tied to AI infrastructure investment that analysts expect to continue for years. The rest of the market will continue dealing with a more competitive, cost-pressured environment. It sits alongside several other 2026 construction challenges that mid-market contractors are navigating at the same time.

What that argues for is getting sharper operationally. Not necessarily bigger. Not necessarily diversifying into sectors you don't know. Just executing better on the work you do best, with better visibility into whether that execution is producing the returns you planned for.

That's a less exciting message than “data centers are booming.” But it's the one that matters most for the majority of contractors operating in this market right now.

If you're thinking through how to strengthen your financial controls in a tougher market, we're happy to share what we're seeing. Reach out at fullclarity.com.

Frequently Asked Questions

Why is the construction market described as “two-speed” in 2026?

Because backlog and growth data look very different depending on the sector. Data center and power infrastructure contractors are experiencing record or near-record demand. Firms in commercial, residential, retail, and other sectors face compressed backlogs and tighter competition. The ABC Backlog Indicator average of 8 months in January 2026 masks a spread from 6.7 months for small firms to 14.2 months for large firms.

How much are construction input costs rising in 2026?

Construction input prices rose at a 12.6% annualized rate in January and February 2026, per ABC's analysis of BLS PPI data. Year-over-year, costs were up 3.7% as of February. Key materials: aluminum up 33%, steel up 20.7%, copper up 15.7%.

What sectors are still growing in 2026 for mid-market contractors?

Water and sewer infrastructure, healthcare, and some public-sector construction are holding up relatively well. Private office, lodging, and retail face the weakest outlooks, according to the AGC 2026 Hiring and Business Outlook survey.

What should contractors do if they're not positioned in data centers or power infrastructure?

Focus on execution quality and financial control on the work you are positioned to win. Real-time cost tracking, active change order management, and accurate cash flow forecasting all directly affect financial outcomes in competitive markets.

How does NetSuite + FullClarity help in a more competitive construction market?

FullClarity is built inside NetSuite and extends it with construction-specific financial workflows: job costing, progress billing, retainage, and change orders. When project costs and finance data live in the same system, project managers and finance teams work from the same real-time numbers: budget variances get caught early, change orders get processed promptly, and billing stays current.