Construction in 2025 was defined by rapid pivots and jarring reversals. Policy shifts and technological advances reshaped risk as events unfolded. Tariff announcements early in the year caught fixed-price builders off guard. Suppliers felt the squeeze. The ripple effects spread into insurance markets, underwriting decisions, procurement planning. By May, though, the initial panic had eased somewhat.
Project labor agreements traced an equally turbulent path. Federal mandates ran headlong into court challenges. Agencies walked back positions. Injunctions landed. Federal guidance tightened. States and cities, meanwhile, went ahead and built their own regulatory frameworks regardless of the federal chaos.
On the technology front, contractors moved past the experimentation phase with AI. Pilot programs gave way to actual deployment, practical applications for tracking project progress, handling documentation, streamlining workflows. The tools became real rather than theoretical. Data center construction demand kept climbing through all of this. Labor availability, however, grew tighter.
Tariffs took the industry on a rollercoaster
The Trump administration’s tariff decisions to begin 2025 created a challenging environment for builders in fixed-price deals. The biggest threat came from producers and logistics firms hit by higher costs or lost export sales, who threatened to cut back on construction spending. Tariffs and inflation significantly affected builder’s risk insurance by increasing material and labor costs, prompting the widespread use of price escalation clauses and early procurement strategies to manage financial volatility. In response, insurers adopted more complex underwriting models, including quota-share arrangements and detailed preconstruction risk assessments, to account for rising project costs, longer timelines and evolving environmental exposures. Canada retaliated against by blocking bids from US contractors on public projects, shrinking backlogs for publicly traded construction multinationals.
However, by May, much of that unease seemed to abate. In a May 1 poll in AGC SmartBrief, 44% of 217 respondents indicated they were less concerned about tariffs than they were in late March/early April. About 29% said their level of concern hasn’t changed, while only 27% said they were more concerned. The industry gave mixed signals, with major firms like Graycor and Granite Construction saying the tariff landscape is less scary, while some project owners put major projects on hold until the dust settled.
So did PLAs
Project labor agreements in US construction went through a dizzying federal cycle this year. Mandates, legal challenges and increasingly specific guidance all collided. Meanwhile, state and local project owners pushed ahead with PLAs on their own terms, often armed with clearer decision frameworks than their federal counterparts.
Federal agencies kicked off the year still working under Executive Order 14063 and the federal acquisition rules that generally demand PLAs on large-scale federal construction exceeding the threshold unless an exception fits. The Court of Federal Claims decision in MVL USA found a PLA mandate unlawful as applied to the disputed procurements. Agencies suddenly faced mounting pressure to justify their requirements with more care.
How did some respond? With broader pullbacks. The Department of Defense, later renamed the Department of War, issued a deviation discouraging PLAs. The General Services Administration carved out a class exception for Land Ports of Entry, stripping PLA clauses from those projects entirely.
But blanket approaches didn’t survive long. In May, a federal court injunction in NABTU v DoD and GSA halted such sweeping moves and underscored the need for case-by-case determinations within the existing EO and FAR structure.
June brought a memo from the Office of Management and Budget that confirmed the executive order remained in effect. The memo discouraged blanket prohibitions and sharpened expectations around market research and the competition exception. GSA reversed course around this time too, pulling its LPOE class exception and funneling projects back into the standard PLA or exception process.
Beyond federal work, large jurisdictions kept leaning into PLAs. New York City announced two agreements covering more than $7B in capital projects. Other places took a different tack. Virginia’s transportation board adopted a policy demanding quantified benefits, independent review, and project-by-project approval before any PLA gets the green light. Guardrails over blanket rules, essentially.
AI was demystified for contractors
In the construction industry, this year could be remembered as the year AI’s role in construction shifted from skepticism to strategic advantage thanks to an increasing number of case studies. At the Associated General Contractors of America’s annual convention, Hensel Phelps showcased its use of Track3D’s AI platform in a project at San Francisco International Airport, highlighting the ability to track progress and identify errors. However, AI still faces challenges, such as limited visibility and the need for detailed BIM models. Advances in AI could lower costs and improve accuracy; leaders like Patrick Murphy of Togal.AI and Hamzah Shanbari of Haskell noted the potential for generative design and real-time validation.
A survey from the Associated General Contractors of America revealed that 44% of construction firms planned actual investment increases in AI, the highest “increase” figure among all technologies listed. That number matters. It suggests executives moved past curiosity into conviction. The workforce data tells a similar story. According to AGC’s 2025 workforce analysis, 45% of firms expected AI and robotics to help by automating error-prone tasks. Another 44% anticipated gains in safety and productivity.
At the vendor level, the big players didn’t wait around. Procore expanded its Procore Helix intelligence layer considerably. The company upgraded Procore Assist with photo-based progress tracking, safety insights, multilingual support and mobile access. Then came Agent Builder in open beta, letting users create custom agents for tasks like RFI drafting and daily log generation. Autodesk pushed its Autodesk Assistant deeper into architecture, engineering and construction workflows. The tool appeared across Revit, AutoCAD and Civil 3D, handling automation like generating sheets and pulling project information on demand. Trimble built out its own lineup. ProjectSight Help Agent, Auto-Submittals and AI Title Block Extraction all went live in certain regions, with additional assistants queued in the company’s Labs program.
Data center demand exploded
While contractors navigated how to incorporate AI into their workflows, they also saw a huge spike in demand to build the data centers that make AI possible.
Typically, there tends to be a balance among US construction markets, with a handful of sectors emerging to the top. This year, there has been one very clear top performing market. Demand for data centers to accommodate the AI boom is the biggest bright spot for construction and is now playing a big role in contractor business strategy. Grand View Research estimates the market will grow at a compound annual growth rate of 25.6% from 2024 to 2030 to reach $219.09 billion by 2030.
OpenAI’s plans to build another five data centers should be a huge boon to the construction industry, creating tens of thousands of jobs. Microsoft are other key players to watch in the AI buildout market, despite some fluctuations in their plans. Companies like Skanska have adapted by unifying semiconductor and data center projects under one division. At the risk management level, the market has contractors inquiring about financial best practices for data center projects.
However, despite rapid expansion, builders face a plethora of challenges, including how to design around power availability and grid upgrades while navigating intensifying local scrutiny over water use, noise and land conversion. On the energy front, a severe shortage of transformers and switchgear could slow the pace of the US’ AI buildout. Much of that equipment was diverted to natural disaster recovery efforts.
“Those have caused emergency demand for some of that equipment that may have pushed other projects even farther out into the future,” Ken Simonson, chief economist at the Associated General Contractors of America, told SmartBrief in April.
Simonson suggested that although the response has generally not been to cancel data center projects, the market conditions could complicate efforts to mitigate cost increases on those projects and to complete them on schedule.
The other major challenge, of course, is the construction industry’s chronic labor shortage. As the market for skilled labor tightened, contractors had to pay premiums for electricians, welders and commissioning teams nationwide, often immediately.
Which takes us to…
Construction felt the sting of ICE enforcement
This year, the Trump administration sent a strong message about immigration compliance as Immigration and Customs Enforcement activity dominated headlines. One of the most notable instances was in late May, when ICE arrested more than 100 migrants from several countries, including Venezuela and Mexico, in a targeted enforcement action at construction sites in Tallahassee, Fla.
The Trump administration’s intensified enforcement of Form I-9 compliance presented (and will continue to present) significant challenges for the construction industry. Contractors that rely heavily on immigrant labor faced increased scrutiny through audits.
Nearly one-third of construction firms surveyed by AGC and NCCER said they have been affected by the increased immigration enforcement. Heightened enforcement and deportation efforts have thinned labor pools and delayed projects as firms scramble to verify status or replace workers. On the visa front, a recently introduced bill proposed an H-2C visa for construction and other critical jobs, allowing companies to hire foreign workers for positions left vacant for extended periods. At the same time, Trump imposed a $100,000 fee on new H-1B petitions, making skilled labor visas much more costly for companies moving forward.
Trump prioritized sweeping deregulation
Although federal actions on immigration created headaches for some contractors, many other others were met with open arms. Trump issued executive orders aimed at streamlining federal procurement, accelerating defense contracting and eliminating diversity-related compliance burdens for contractors, particularly for DOT contracts.
Environmental rollbacks reduced regulatory costs but increased uncertainty for engineering and construction firms. The Trump administration delivered on its promises to drastically reduce the scope of the EPA. This is a double-edged sword, because while many stakeholders agree on the need for less red tape, PFAS and other chemicals are becoming a growing problem in states. Major cities and municipalities had some resources to adapt to this ramped up deregulatory environment, but more rural areas struggled.
______________________________________________________________________
This is part 2 of SmartBrief’s Year in Infrastructure review for 2025. Click here for part 1. For the latest relevant news to the construction industry, sign up for AGC SmartBrief.
