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Top risks for contractors in H1 2025: Workforce, financial, and supply chain challenges

Explore top construction risks for contractors in 2025, including workforce, financial, and supply chain challenges, and learn risk mitigation strategies.

08/19/2025 · 4 minute read

Hiring and retention risks, inflation and economic volatility, increased costs for materials, bidding and contracting risks, and several other challenges are the main concerns for contractors in the US, according to Marsh’s Global construction risk review 2025 (see Figure 1).

As these organizations navigate the complexities of construction projects within a continuously shifting risk landscape, there is mounting pressure to focus on robust risk mitigation strategies and improve insurance programs.

Our research indicates that organizations in the construction industry use a range of methods to address heightened risks, including sharing risks with suppliers and subcontractors, negotiating stronger contract terms to shift risk responsibility, and increasing contingency budgets to cover potential risk-related costs. 

Risk conditions remained challenging for contractors in the first half of 2025, with the same risks outlined in the report continuing to pose significant threats to project timelines and budgets. Contractors are increasingly confronted with the dual challenge of managing rising costs while maintaining competitive bids. 

The evolving geopolitical landscape, including the introduction of tariffs and counter-tariffs and trade restrictions, further complicates the risk environment, requiring contractors to take a more strategic approach to risk management.

Below we address how three of the top risks are impacting contractors in the US as they seek to remain competitive and grow their business, despite the headwinds.

Interested in reading the Global construction risk review? Download it now.

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Addressing hiring and retention challenges to build a skilled workforce

Attracting and retaining the needed skilled talent has long been a challenge for the construction industry. And our survey showed that this remains the top concern for the US construction industry.

While recent data shows that job openings in April 2025 dropped by 45% since the high in December 2023, likely due to stagnant workforce dynamics and weakening construction spending, more than half of contractors intend to increase their staffing levels over the next six months.

Contractors are often vying for the best talent. But the physically demanding nature of many construction jobs, coupled with potentially hazardous working conditions and limited career advancement opportunities, may pose barriers to attracting younger workers. Additionally, the lack of flexible work arrangements and the need to travel to job sites may further deter qualified candidates.

Health and safety concerns often play a critical role in the hiring and retention dilemma. Construction jobs often involve risks, such as working at heights and operating heavy machinery, which can lead to serious accidents and long-term health issues. Moreover, the construction industry has one of the highest suicide rates among all sectors, underscoring the importance of services to help impacted employees.

Addressing these challenges and creating an attractive environment for skilled workers requires strategic actions, including investment in training and development. Apprenticeship and mentorship programs, along with continuing education opportunities, can empower workers, allowing them to feel valued and equipped to succeed. Further, creating a strong safety culture and prioritizing employees’ health can help foster loyalty and reduce turnover rates. Investing in technology can also help make construction careers more appealing, particularly to tech-savvy younger workers.

The demand for skilled labor has not slowed down. Companies that take proactive steps to address talent-related challenges will be better placed to retain current workers and attract those most suited for open positions.

Managing financial risks in a high-stakes environment

In the cash-intensive construction sector, timely payments are among the most essential requirements for maintaining operations. However, economic risks and project delays can create significant cash flow challenges, particularly for larger projects that demand substantial upfront investments. Contractors must be prepared to manage considerable outflows while waiting for reimbursement, a scenario that can strain even financially stable firms.

As the size and complexity of construction projects continue to grow, the financial stakes for contractors also escalate. In a fiercely competitive environment, many firms find themselves bidding on projects with incomplete information, often committing to pricing based on only a fraction of the design documents. This practice can lead to unrealistically low bids resulting in substantial financial losses. Cost overruns can erode profit margins and jeopardize financial stability. In some cases, contractors may attempt to recover a portion of losses through change orders, but this approach can strain relationships with clients and lead to disputes.

The financial health of contractors tends to be closely tied to their ability to secure financing. As projects become more capital-intensive, reliance on loans or lines of credit to fund operations generally increases. Economic downturns or shifts in lending practices may affect a contractor’s ability to access necessary funds, exacerbating financial strain.

The risk of insolvency remains a looming concern. Contractors who fail to manage their financial risks effectively may find themselves unable to meet their obligations, potentially leading to bankruptcy. This risk may be particularly pronounced for small to midsize firms that may lack the financial reserves to weather economic downturns or project delays, but larger contractor businesses are not immune.

As the industry evolves, a comprehensive understanding of financial risks and a robust strategy to manage and transfer those challenges will become more and more critical for sustaining growth and profitability in an increasingly competitive environment. Delay in startup (DSU) coverage, for example, can protect against financial losses resulting from project delays, helping contractors recover lost income due to unforeseen interruptions. Having a robust insurance program can also enhance a contractor’s creditworthiness as lenders often view comprehensive coverage as a sign of financial responsibility

Managing supply chain challenges depends on early risk identification

Today’s complex and interconnected global supply chains are under increased pressure from various sources. As construction projects grow more intricate, any disruptions in the supply chain can lead to delays in the procurement of critical materials, resulting in setbacks and increased costs.

Contractors in the US are already experiencing financial impacts due to supply chain constraints. Our survey shows that these challenges have led to moderate or substantial cost increases for 70% of respondents (see Figure 2). Project timelines have been less vulnerable, with less than a third of US contractors seeing these impacted by supply chain constraints.

The often-unpredictable issues that could disrupt supply chains necessitate a proactive approach to supply management. This includes a clear understanding of both direct and upstream suppliers, and the risks associated with sourcing materials from various locations.

Transparency and regular communication with suppliers can facilitate the anticipation of potential disruptions. This includes establishing strong relationships with suppliers and gaining as much insight as possible into their operations, capabilities, and potential vulnerabilities. 

Early risk identification helps to enable the development of contingency plans to mitigate the impact of disruptions. For example, if a supplier is experiencing delays in securing critical materials, contractors can explore alternative sourcing options or seek to adjust project timelines to minimize setbacks. Diversifying suppliers can reduce reliance on a single source, with the added benefit of allowing contractors to potentially negotiate better pricing, which could ultimately contribute to improved project outcomes. Further, knowing the geographic location of both direct and upstream suppliers can help identify and address aggregation risks. 

A robust insurance program is essential given the ability of complex supply chains to increase the risk of losses. Cargo coverage, for example, can safeguard materials and equipment during transit, helping contractors recover losses if damage is sustained. DSU coverage can provide financial protection against losses incurred due to project delays caused by supply chain disruptions.  

Contractors, like many other businesses, are vulnerable to the hidden risks and disruptions that can ripple through their supply chain networks, impacting overall project timelines and revenues. Addressing unpredictable risks requires a targeted approach to identify critical vulnerabilities and devise a plan to address them.

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