4 Financial Factors Construction Leaders Should Consider in 2026

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As construction rebounds in 2026, contractors must manage rising material costs, tariff risks, ownership transitions and new tax rules.

By Aaron Epp, Aaron Scale

As we kick off the new year, construction leaders face continued high costs, new tax policies, and critical decisions regarding ownership transitions. Following a soft 2025 across much of the industry, we expect 2026 to bring a steady rebound of growth driven primarily by infrastructure, data center and military development demand.

Supporting accounting and advisory needs across the construction, architectural, and engineering sectors, Bennett Thrasher is already seeing this happen, with some clients managing healthy project pipelines extending two to three years out.

That said, construction leaders should proactively consider four key factors to make sure they can adapt quickly, protect margins, reduce risk and take advantage of new tax incentives.

1. Price Escalation Clauses Are Nonnegotiable

With construction material costs still rising due to tariff pressures, price escalation clauses remain one of the most important tools contractors have to protect their margins. In 2026, construction leaders should revisit contract language to ensure it includes:

• Clear triggers for material price adjustments tied to indices such as Engineering News Record (ENR) or Producer Price Index (PPI).
• Requirements for subcontractors to adopt similar clauses to prevent margin erosion downstream
• Provisions allowing renegotiation or termination if tariffs spike beyond predefined thresholds.
• Periodic cost review checkpoints with owners to proactively adjust budgets.

2. Navigating Tariff Impacts and Commodity Risks

Beyond price escalation clauses, we recommend several other practices for managing risk and cost fluctuations tied to tariffs and heightened material costs. Our top tips include:

• Diversify suppliers by building relationships with multiple vendors across regions to reduce dependency on a single source.
• Lock in prices for key materials through advance purchase agreements when feasible.
• Maintain a buffer stock of critical materials to mitigate short-term price spikes or delays.
• Assign team members to track commodity markets and tariff developments to enable proactive adjustments.
• Work with clients to share risk, such as including shared savings or cost-sharing provisions for major fluctuations.

3. Planning for Succession, M&A, and Ownership Transitions

Construction remains one of the most active M&A categories in the U.S. Private equity roll-ups continue, and many near-retirement owners are evaluating succession. If you’re considering selling your firm or planning for a leadership transition in 2026, key steps include:

• Obtaining independent, up-to-date business valuations to understand your firm’s market position and inform negotiations. Prepare two to three years of clean, GAAP-compliant financials to strengthen valuation.
• Shoring up internal controls as buyers heavily discount companies with weak processes.
• Documenting key customer, subcontractor and bonding relationships to ensure a smooth handoff.
• Grooming next-generation leaders at least two years ahead for internal succession.

4. Maximizing 2025 Construction Tax Incentives

The sweeping One Big Beautiful Bill (OBBB) tax legislation passed in 2025 is set to deliver meaningful benefits for construction businesses in the year ahead. Key opportunities to maximize these benefits include:

• 100% Bonus Depreciation – The OBBB restores 100% bonus depreciation on property acquired after January 19, 2025. This allows businesses to immediately deduct the full cost of qualifying property, including machinery, equipment, vehicles and other assets.
• Section 179 Expansion – Small- to mid-size contractors can also deduct equipment purchases in the first year, with an increased Section 179 expense limit of $2.5 million (phased out after $4 million in purchases).
• Expansion of Exception from Using the Percentage of Completion Method (PCM) – Generally, contractors are required to use PCM for long-term contracts unless they meet the small contract exception or home construction exception, which applies to buildings with four or fewer dwelling units. The new law expands this to any residential construction project, including apartments, condos, student housing, long-term care facilities, etc. This provides greater flexibility and potential tax deferral opportunities for residential construction contractors.

Conversely, the expiration of green building incentives such as the 179D deduction and 45L credits may affect investment in energy-efficient HVAC, lighting, and insulation upgrades. Businesses specializing in these areas should evaluate how the loss of these credits might influence project planning.

Beyond tax incentives, sales and use tax compliance in the construction industry remains complex. Too often, construction businesses underestimate how contract terms can shift sales and use tax liability. From structuring contracts to audit defense, understanding your tax obligations can mean the difference between compliance and costly penalties. If you operate in South Carolina, Tennessee, or Florida, you may find our recent webinar on this topic helpful.

Position Your Business for Success with Strategic Planning and Expert Guidance

With construction poised for renewed growth, leaders who take proactive steps on risk management, ownership transition planning, and tax strategy will enter 2026 on stronger footing. Supported by an accounting partner who understands your industry’s unique pressures and potential, you can turn what may be a complex year ahead into one defined by clarity, control and competitive advantage.

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