Construction costs surged in May at fastest annual rate since pandemic

Construction input costs climbed in May at the steepest annual rate since the pandemic, placing fresh financial strain on contractors already navigating an uncertain bidding environment, according to Construction Dive.

Contractors are being hit by a double whammy of rising materials prices and slower growth in bid prices. — Ken Simonson, chief economist, Associated General Contractors

Simonson's characterization underscores a margin problem that goes beyond simple cost inflation. When input prices outpace the rates contractors can charge on new work, the gap erodes profitability on projects already in the pipeline as well as those being bid today.

Materials pressure meets a softening bid market

The divergence between what contractors pay for materials and what owners are willing to put in contracts is a structural challenge that has intensified in recent months. Lumber, steel and other key inputs have all faced renewed upward price pressure in 2025, driven in part by tariff uncertainty and supply-chain adjustments. Bid prices, however, have not kept pace, reflecting cautious owner budgets and competitive procurement.

For specialty and general contractors alike, the squeeze complicates project forecasting and raises the risk of underbidding on long-duration work. Firms with fixed-price contracts signed months ago are particularly exposed as materials costs move higher mid-project.

Planning activity recovers on data center and healthcare demand

Despite the cost headwinds, overall construction planning activity posted an increase in May, driven by healthcare and data center projects, according to Dodge Construction Network. The gain builds on April's uptick after a sluggish start to the year, suggesting that demand in select verticals remains strong enough to sustain project pipelines.

Data centers in particular have emerged as one of the most active construction segments in 2025, fueled by sustained investment from major technology companies. Meta has earmarked $115 million for a workforce academy designed to support data center construction, while Google has committed $50 million toward skilled trades training—moves that reflect both the scale of planned builds and an industry-wide concern about labor supply.

Tech investment signals long-term demand for trades

Google's $50 million skilled-trades commitment and Meta's $115 million workforce academy represent a notable private-sector push to expand the pool of construction workers qualified for the technical demands of hyperscale facilities. Both programs signal that technology firms are treating workforce development as a prerequisite for hitting their own build timelines, rather than a peripheral corporate initiative.

Separately, engineering and construction giant Bechtel has won a role on Micron's $100 billion New York megafab project, a semiconductor manufacturing facility that ranks among the largest construction undertakings in the country. The project adds to a growing list of megaprojects requiring specialized construction capacity at a time when the skilled-labor market is already tight.

Broader industry currents

On the labor and regulatory front, the U.S. House passed legislation aimed at shortening the timeline for union-employer contract negotiations in construction, a process that can currently stretch beyond a year after workers vote to unionize. The Associated Builders and Contractors publicly opposed the bill, while proponents argue that faster resolution reduces project-level uncertainty for owners and contractors alike.

McCarthy Building Companies announced a partnership with data analytics firm Palantir to incorporate artificial intelligence into its operations, joining a cohort of large contractors pursuing enterprise-level AI agreements. The trend reflects growing interest in applying AI to project planning, cost tracking and field productivity—areas where even incremental efficiency gains can help offset the margin compression Simonson described.

Taken together, May's data present a construction industry that is simultaneously under cost pressure from above and being reshaped by capital-intensive demand from the technology and healthcare sectors. How quickly firms can recalibrate bid strategies and workforce capacity will likely define which contractors expand profitably through the rest of 2025.