The construction industry is grappling with a complex web of challenges that extends beyond the hypothetical concerns discussed earlier this year. While tariffs on materials like copper have materialized as expected, immigration enforcement actions are creating more immediate and severe disruptions across construction sites, particularly affecting smaller subcontractors who form the backbone of the industry.

Lisa Colon, a construction law partner at Saul Ewing who has spent 25 years navigating industry challenges, reports that the reality on the ground differs significantly from initial projections. “I don’t think it’s been the impact we thought it was going to be immediately with tariffs,” Colon explains. “The main issue I’ve been seeing is the ICE raids, immigration and labor. That has really been what my clients are truly dealing with.”

Copper Tariffs Create Immediate Cost Pressures

The 50% tariffs on copper products that took effect August 1st are beginning to impact electrical subcontractors across the industry. Copper’s essential role in electrical wiring makes these tariffs particularly problematic for projects currently underway.

“Electrical subcontracting is really where you’re going to find the impact,” Colon notes. “Electrical subs who are in the middle of projects are probably going to see an immediate impact.”The timing creates a difficult situation for these contractors, who typically wait until just weeks before beginning work to purchase materials, only to discover dramatically higher prices.

The challenge extends beyond simple cost increases. “Every time there’s a tariff that’s really in effect and affecting prices, you’re going to immediately see not only pricing be affected, but also supply chain, because folks then start to hoard,” Colon explains.

For electrical subcontractors with lump-sum contracts, many lack contractual provisions allowing them to pass increased costs upstream, forcing them to either absorb the additional expense or risk contract disputes by requesting change orders.

Immigration Enforcement Creates Widespread Labor Disruptions

More significant than material cost increases are the labor shortages stemming from increased immigration enforcement. High-profile ICE raids at construction sites have created what Colon describes as a “chilling effect” that extends far beyond the immediate locations.

A May 29th raid in Tallahassee garnered national media attention and demonstrated the ripple effects of enforcement actions. “The raid had such an impact that there was a job site in Alabama where nobody showed up the next day, legal or undocumented, because people just don’t want to be caught up, even if you have papers,” Colon reports.

The Alabama job site disruption alone resulted in nearly $20 million in delays, illustrating how enforcement actions in one location can affect projects across state lines.

Subcontractor Vulnerability Exposes Industry Weakness

The current challenges highlight the construction industry’s reliance on smaller subcontractors, particularly in trades requiring less specialized skills. While large general contractors can better insulate themselves from labor disruptions, subcontractors in roofing, drywall, carpentry, and millwork face immediate workforce shortages.

“The GCs, they attract the best talent, but the subcontractors, the trade contractors, they’re the ones that are struggling,” Colon observes. These smaller firms often rely on temporary labor agencies or informal hiring practices that make them particularly vulnerable.

In Florida and other Gulf Coast states, the informal nature of construction labor hiring is well-established. “As someone who has done this for 25 years, this is the reality of construction in Florida and most of the Gulf states,” Colon explains. “We don’t have union labor like the Northeast states do.”

Hurricane Season Compounds Concerns

The timing of these labor shortages coincides with hurricane season. Post-hurricane reconstruction typically requires exactly the types of trades most affected by current labor shortages.

“God forbid that we have a major hurricane hit the state or anywhere in the Gulf Coast, and there’s going to be, anytime we have a hurricane, there’s always at the trade level, the roofers, the carpenters, the folks that hang drywall or do framing, they’re always looking for people,” Colon notes.

Contractual Adaptations and Risk Management

In response to these challenges, construction attorneys are focusing on contract provisions that address cost escalations and supply chain disruptions. “We’ve been really focusing on escalation clauses, making sure that those are up to date and as specific as they can be,” Colon explains.

The approach involves creating broad contractual language that captures various types of cost increases, not just tariff-specific provisions. However, the unpredictable nature of both tariff implementations and immigration enforcement makes it difficult for contractors to plan with certainty.

Developer Strategies in Uncertain Times

For developers, the current environment requires careful financial planning and realistic expectations. Colon emphasizes the importance of adequate contingency funding: “Developers have to look into a crystal ball and consider what issues they’re going to have to deal with as an owner trying to get their project across the finish line.”

The scale of required contingencies has grown. Colon recalls a recent project that allocated between $12-16 million for escalation contingencies during the volatile 2021-2022 period, yet still exceeded those amounts.

“We had a contingency on this project, which I considered a hefty amount of money, and we blew through that,” she explains, highlighting the difficulty of predicting cost escalations.

Project Completion Challenges

The combination of labor shortages and material cost increases creates a cascade of potential problems for ongoing projects. Contractors unable to secure adequate labor or absorb material cost increases may face delays, while owners who refuse to accommodate cost increases risk extended delays or incomplete projects.

“If the owner is going to say, ‘Well, I have a GMP, and I don’t care, get it built,’ then you may not get it built,” Colon warns. “Or you may get it built with months of delay, if the contractor can’t fund it, or the subs can’t fund it, and then you have claims flying left and right on the project.”

Looking Ahead

As the industry navigates these challenges, the interconnected nature of labor availability, material costs, and project completion timelines becomes increasingly apparent. The situation requires flexibility from all parties and realistic assessment of project risks.

“We’re only eight months into this, and it’s going to be a roller coaster ride,” Colon concludes, reflecting the uncertainty that continues to characterize the construction industry’s operating environment.

For developers, contractors, and investors in the construction sector, the current period demands careful attention to contract terms, adequate contingency planning, and realistic expectations about project timelines and costs. The industry’s traditional approaches to risk management are being tested by a combination of policy changes and enforcement actions that create both immediate operational challenges and longer-term strategic considerations.