As the year began, the construction industry in New York and New Jersey was poised for significant growth, with forecasts projecting a potential boom that could drive the sector for the next five years. However, a series of unprecedented economic challenges has tempered those initial expectations, requiring contractors to rethink their strategies in a shifting environment.
Recent federal construction policy changes and economic developments are reshaping construction trends in the New York-New Jersey corridor, one of the nation’s most active infrastructure regions. A funding freeze on a major transit project, changes to business certification rules and tariffs on key materials are creating a complex environment for contractors, with the potential to disrupt project timelines, budgets and business goals across the region.
Impact of Funding Freeze on the Gateway Project
Federal actions have imposed a funding freeze on the Gateway Project, a $16 billion initiative to build a new rail tunnel under the Hudson River. The freeze of this major infrastructure initiative could have significant ripple effects:
- Project delays, which can lead to increased costs, cash flow issues for contractors and higher material and equipment expenses
- Economic impacts that extend beyond the immediate project ecosystem, affecting jobs, transportation and regional growth.
Navigating Changes to Business Certification Rules
Recent revisions to Disadvantaged Business Enterprise (DBE) certification standards have changed how disadvantaged status is determined. As a result, participation targets for DBE projects are currently under review. These federal policy changes have created a need for construction companies to carefully interpret and comply with the new regulations outlined in the Interim Final Rule, potentially leading to higher legal and compliance costs during the process.
Managing the Impact of Tariffs
Fluctuating tariff policies have created an atmosphere of uncertainty for contractors, while the industry continues to face the impacts of 25% tariffs on essential building materials, such as steel, aluminum and lumber. These tariffs, coupled with other federal construction policy changes, have caused cost hikes and material shortages, making it difficult for contractors to accurately forecast and manage project expenses.
In an industry already operating on tight profit margins, these additional costs present a serious challenge. Contractors now need to develop strategies to absorb or offset the increased expenses to stay competitive and profitable. Some project owners are responding to these uncertainties by adjusting their construction budgets and timelines, and, in more extreme cases, projects are being put on hold or even canceled altogether due to the lack of clarity.
Strategic Actions for Navigating Federal Policy Changes in Construction
As the New York-New Jersey construction industry faces federal policy changes and economic shifts, contractors must adopt a proactive and agile approach. Consider the following strategies:
- Strengthen financial management practices: Use “tried and true” tools like cash flow forecasting, detailed project budgeting and scenario planning to identify potential risks and opportunities across multiple outcomes.
- Explore alternative financing options: To maintain liquidity and stability, consider alternative financing options, such as working capital lines of credit, short-term loans and negotiating advance payments from project owners.
- Communicate with financial partners: Engage in transparent communication with bonding agents, sureties, bankers and other financial stakeholders. Demonstrating a clear plan for managing risk builds trust and support.
- Plan strategically for tariffs: Continue to explore alternative procurement strategies, including sourcing from domestic suppliers, securing inventory at favorable rates and identifying suitable material substitutions.
- Stay informed and adapt to change: Monitor regulatory, economic and federal construction policy change developments, reassess strategies regularly and leverage data to make timely, informed decisions.
Looking Ahead
The NY–NJ construction industry remains a crucial driver of economic growth, but changing federal policies and market conditions call for a new level of strategic planning. By staying informed about these federal policy shifts impacting construction and adjusting strategies accordingly, contractors can better position themselves to succeed, even as the landscape evolves.
How Grasi’s Construction Advisors Can Help
Grassi’s Construction Advisors work closely with contractors to navigate shifting regulatory, economic and funding conditions. Whether assessing the impact of federal policy changes, strengthening financial management practices or developing strategies to manage risk and seize new opportunities, our team helps contractors protect profitability and position their businesses for success in any climate.
Reach out to Carl Oliveri, Construction Practice Leader and Partner, or a Grassi advisor today to learn strategies for navigating these changes and strengthening your competitive position.
Frequently Asked Questions
What are the key changes to DBE certification rules contractors should know? The Interim Final Rule modifies how disadvantaged status is determined and is prompting a review of participation goals. Contractors working on federally funded projects must ensure their compliance processes align with the new standards to avoid eligibility issues.
How can construction firms protect margins during trade policy shifts? Strategies include using escalation clauses, modeling multiple cost scenarios, diversifying procurement sources, and tracking tariff-related expenses to improve forecasting and negotiation leverage.
What types of construction materials are most affected by tariffs? Steel, aluminum, copper, lumber, and certain mechanical and electrical components are most impacted, particularly those sourced internationally. These cost fluctuations can affect bidding, scheduling, and project profitability.
What financial strategies can help contractors weather uncertainty? Scenario planning, strong cash flow forecasting, exploring alternative financing and maintaining open communication with financial partners are key to maintaining stability disruptions and federal construction policy changes.
