Construction in 2025: Emerging Risks & Solutions

The construction industry is at a crossroads. In 2024, U.S. construction spending surged to nearly $2 trillion —
up 6.5% from 2023. Yet, construction firms continue to battle material shortages, labor gaps and supply chain disruptions. Additionally, tightening regulations, growing liability exposures and record-high insurance claims are
reshaping the industry’s risk landscape.

As 2025 introduces new uncertainties and risks, like economic pressures, contract disputes and extreme weather, construction leaders must act now to safeguard their projects, profits and long-term stability.

Let’s dive into these challenges — and strategies to proactively protect your business.

Economic Pressures & Rising Costs

Inflation & Material Cost Increases

While inflation has slowed since its 2022 peak, construction material costs and overall project expenses remain challenging. To offset rising costs, many construction leaders are adjusting bids and pricing models. However, subcontractors and suppliers are also under financial strain — increasing the risk of bankruptcies and supply chain disruptions.

If a key vendor or subcontractor fails mid-project, your firm could face costly delays, contract disputes and legal challenges. With fewer financially stable suppliers, it’s important to secure reliable partners and reduce financial exposures.

Tips to Manage Your Risk

• Vet vendors and subcontractors regularly to assess financial stability.
• Negotiate fixed-price contracts to minimize cost-fluctuation exposures.
• Adjust your builder’s risk insurance coverage limits to adjust to rising material costs.

Labor Shortages & Rising Wages

The National Association of Home Builders (NAHB) estimates the construction sector will need an additional 720,000 skilled workers in 2025. In response, many firms have raised wages and expanded workforce development initiatives. As a result, industry wages rose by 4.3% in 2024, driving up operational expenses and insurance costs. With fewer skilled workers available and labor costs on the rise, it’s crucial to strengthen your workforce while controlling expenses.

Tips to Manage Your Risk

• Build a pipeline of skilled workers with apprenticeship programs and workforce development measures.
• Enhance safety training to minimize workplace injuries and prevent costly workers’ compensation claims.
• Improve retention with competitive benefits and career growth opportunities.

Supply Chain Disruptions

While pandemic-related supply chain disruptions have eased, construction firms still face delays in sourcing critical materials. Geopolitical conflicts are disrupting global trade routes, cyber attacks on suppliers have slowed production, and severe weather events like hurricanes, wildfires and floods are delaying transportation and making certain materials harder to obtain. Additionally, port congestion, trucking shortages and rising fuel costs further complicate delivery timelines and increase expenses. As securing materials becomes harder and costs climb, project timelines may stretch — driving expenses even higher.

Tips to Manage Your Risk

• Diversify supplier relationships to prevent single-source dependency.
• Stockpile critical material reserves to buffer against shortages.
• Review contract terms to include penalties and protections against costly delays.

Legal & Compliance Challenges

Evolving Building Safety Regulations

Recent high-profile structural disasters (e.g., Grenfell Tower fire, Surfside condo collapse) have led to stricter building codes. Regulators now require mandatory safety reporting, enforce stricter material standards, and hold developers and contractors more accountable. Enforcement efforts have also intensified with heavier fines, project shutdowns and greater liability.

Insurers and underwriters have tightened risk assessments and policy requirements to align with these new safety standards. Construction firms that fail to comply may face higher premiums, policy exclusions or difficulty securing coverage. Expect to provide documentation of safety protocols, updated building materials and proactive risk management measures. You should treat compliance as a legal obligation and a critical factor in securing insurance coverage.

Tips to Manage Your Risk

• Consult legal advisors to stay ahead of changing regulations.
• Conduct routine site inspections to ensure compliance with updated safety codes.
• Invest in resilient, sustainable building materials.
• Document all safety measures to support insurance coverage and defend against liability claims.

Contract Disputes & Insolvency Risks

Economic pressures have led to an increase in contract breakdowns and legal disputes across the construction sector. Rising business failures among contractors, subcontractors and suppliers have resulted in unexpected project disruptions, financial losses and liability concerns.

When a key vendor or subcontractor declares bankruptcy mid-project, your company may face unpaid invoices, stalled work and costly legal battles. Poorly structured contracts can further expose your firm to liability for unfinished projects, disputes over defective work and penalties for missed deadlines. Additionally, as interest rates and material costs remain volatile, some firms struggle to secure financing, increasing the risk of contract defaults.

Tips to Manage Your Risk

• Strengthen contract language to define insolvency risks and liability.
• Require performance bonds from subcontractors.
• Regularly review the financial stability of key partners.
• Diversify supplier and subcontractor relationships.

Rising Insurance Claims & Costs

Nuclear Verdicts & Social Inflation

Record-breaking nuclear verdicts (jury awards exceeding $10 million) have driven insurance claim costs to historic highs. According to Marathon Strategies, nuclear verdicts surged by 27% in 2023, a 15-year high, with 27 cases exceeding $100 million. These escalating payouts are largely fueled by public corporate distrust, increased litigation funding, environmental claims, job site injuries and defective construction disputes.

Beyond rising verdict amounts, social inflation (expanding liability and more sympathetic juries) has made the sector more vulnerable to excessive claims. Cases involving worker injuries, subcontractor disputes and unsafe building practices are receiving harsher legal scrutiny, often resulting in larger settlements and stricter regulatory enforcement. As a result, insurers are raising premiums, tightening underwriting requirements and limiting coverage options for high-risk construction projects.

Tips to Manage Your Risk

• Implement strict job site safety protocols.
• Use contractor-controlled insurance programs (CCIPs).
• Document safety measures, compliance efforts and training programs.
• Review contracts carefully to clarify liability responsibilities.

Construction Defects & Disputes

Defect claims and project disputes are increasing insurance costs and legal battles. Construction nuclear verdicts, often driven by professional liability incidents, unsafe building practices, auto accidents and worksite safety violations, have led to multi-million-dollar settlements. Economic struggles worsen disputes as companies face contract defaults, insolvencies and supply chain disruptions. Issues like defective workmanship, structural flaws and safety code violations increase liability and lead to project cancellations, regulator fines and reputational damage.

Tips to Manage Your Risk

• Enforce strict quality control measures and project oversight.
• Invest in professional liability insurance.
• Train employees on proper building techniques.
• Review and strengthen contracts to define defect liability and dispute resolution terms.

Environmental Risks & Natural Disasters

Extreme Weather & Construction Exposure

In 2024, the U.S. faced 27 billion-dollar weather disasters — one of the most destructive years on record. These events raise workers’ compensation risks, increase insurance costs and force insurers to withdraw from high-risk markets, leaving construction firms with limited coverage options.

Tips to Manage Your Risk

• Secure materials and equipment in weather-resistant storage.
• Use weather-resistant building materials for long-term durability.
• Develop disaster response plans to minimize downtime and financial loss.

We’re Here to Help Protect Your Construction Business in 2025

The construction industry faces evolving risks, from rising insurance costs to regulatory changes and supply chain challenges. Staying ahead of these trends is key to long-term growth and operational success. Our team of construction advisors is here to provide you with industry-specific risk management strategies to help safeguard your firm. Connect with a member of our team to discuss how we can support your risk management needs.