agchouston.org Summer 2025 Cornerstone 21 instead of those imported from China or even adopting different structural designs, it’s important to note that value engineering isn’t just a cost-saving exer- cise — it’s a critical risk mitigation tool. “Contractors, owners and their design- ers should discuss whether alternative materials or designs might mitigate the impact of tariffs,” Simonson clarified. “Owners may be willing to cover some tariff costs if that will encourage more contractors to bid or to include lower contingencies in their bids.” 4. Strategic Inventory Management When non-perishable materials are expected to rise in cost or suffer supply-chain constraints and avail- ability issues, locking in current prices and selectively stockpiling and bulk purchasing resources can be a game-changer. Simonson confirms that it “may also make sense to order materials that can be stockpiled earlier than usual, if the cost of storage, insurance, etc. is likely to be less than the cost of tariffs.” Strategic inventory management requires careful analysis of carrying costs, storage logistics (on-site vs. off- site) and potential obsolescence. Con- versely, relying solely on just-in-time delivery increases exposure to sudden price spikes and delays. Striking the right balance of both is key! 5. Proactive Communication and Collaboration Open and frequent communication with all involved parties — from clients to designers, suppliers and subcontractors — is essential. By discussing the potential impacts of new tariffs early, collaboratively seeking solutions and managing expectations, general contractors can prevent costly misunderstandings and strengthen partnerships to overcome potential challenges. Remember, transparency in communication builds trust. “We recommend clear communi- cation be provided to both upstream and downstream parties on projects to ensure compliance with contract notice provisions, and to promote negotiations with owners as early as possible to keep projects moving and to avoid delays and claims,” affirmed Harrod. Rather than waiting for a crisis and reactively trying to find a last-minute solution, contractors should proactively engage the client and teams to explore alternative options to potential setbacks. Looking to the Future The tariff situation is constantly evolv- ing — and upcoming judicial rulings may impact it as well. But re-examining supply chains, partnerships and use of technology while cultivating client communications can help improve your operations and bottom line no matter what happens in the future. When political and financial uncer- tainty threatens to shake up the con- struction industry, contractors can lean on organizations such as the Associated General Contractors - Houston Chap- ter for support and information. AGC Houston offers valuable resources, market intelligence, advocacy support, educational webinars, networking oppor- tunities and more to help its members navigate the impacts of tariffs. For Houston’s contractors, it’s more important than ever to stay informed of the rapidly changing trade policies, monitor government announcements, market news and material price trends. Managing relationships – with clients as well as with suppliers and subcontrac- tors – can facilitate problem-solving and flexibility when unexpected issues arise, while thoughtful financial future-plan- ning can prevent costly surprises. Develop contingency plans for a vari- ety of scenarios — such as fluctuating tariffs, shifting to different materials or supply chain routes becoming delayed or altogether blocked. An agile operation allows for tactical adaptation. While construction activity has been growing, the past year has also shown signs of it slowing down. “That trend is likely to continue for the next several months, but the risk of contraction — and an economy-wide recession — has increased significantly,” added Simon- son. “The outlook for 2026 is too murky to make a prediction now before the level of tariffs, federal spending and taxes, and other policy changes is clearer.” Similarly, Harrod predicts that industrial, manufacturing, data centers, energy and infrastructure projects are likely to be impacted by tariffs in 2025 and 2026 due to the overseas materials and technology used in these projects. “We see EPC contractors adjusting to impacts by negotiating pricing earlier and partnering with industry leaders. Currently, some contracts are being placed on hold because pricing cannot be finalized due to a lack of certainty as to tariffs,” she elaborated. “We expect that financing and underwriting will need to adjust based on the risk assess- ments and the need for more capital since the cost of labor and materials is increasing.” Fortunately, the outlook isn’t entirely bleak — the Trump administration’s tar- iffs were enacted with the ultimate goal of boosting jobs in the United States, particularly in manufacturing sectors, as well as increasing demand for domesti- cally produced materials. Long term, this could prove to be hugely beneficial for the American economy as well as for Houston, but it will be a waiting game to see how it plays out. Contractors need to be pro- active to overcome the instability in the interim; those who rely on imported goods but who also navigate the com- ing years with agility, foresight and resilience can emerge more competitive and better equipped for a transformed construction landscape. Re-examine supply chains, partnerships and use of technology to improve operations and bottom line.
