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Construction contracts and risk management for today’s market realities

Updated: July 04, 2025

The threat of higher or additional U.S. tariffs, a national labour shortage, and an evolving Canadian political landscape have resulted in a construction industry characterized by uncertainty and volatility.

Current economic conditions are disrupting the state of Canada’s construction industry, and wreaking havoc on contracts, timelines, and overall project viability. Despite these conditions, collaborative engagements, new approaches, and proactive project management solutions can help contractors mitigate challenges and risks.

Ongoing tariff threats and increases

Rising tariffs and threats of additional tariffs from American President Donald Trump have already caused economic uncertainty in Canada, and the construction industry is not immune.

As a key building material trade partner, the United States’ tariffs are anticipated to drive up material costs—most notably on steel and aluminum, automobiles, and construction equipment. The effects of the tariffs may lead to supply chain disruptions, higher-than-projected building costs, and project delays or cancellations.

Tariffs also increase the likelihood of contractual disputes between contractors and owners/developers as most contracts are fixed price and don’t account for anticipated fluctuations of this magnitude.

“Tariff uncertainty is putting fixed-price contracts under pressure, proactive planning, leveraging contract provisions, and clear documentation are key to reducing disputes and keeping projects on track.”
Sathish Kumar, Director, Construction Advisory and Disputes
An overhead view of three workers wearing high visibility safety vests and hard hats while standing at a construction site. One worker is holding a laptop and another is holding blueprints.

The great Canadian labour shortage

In what is now a continuing trend, the number of Canadians pursuing careers in construction continues to decline. When combined with an increased demand for housing, it has resulted in significant labour shortages. Contractors are now turning to out-of-province labourers to fulfill project requirements. This creates contractual risk if not factored into construction cost estimates.

In addition, many skilled construction roles require per-province certification, creating additional barriers to interprovincial work and trade. In light of U.S. tariffs, many Canadian provinces are acting quickly and working together to remove provincial barriers, which currently cost Canada up to $200 billion annually.

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A man and a woman standing and looking at a laptop in a modern building. The man is wearing a hard hat while the woman is holding one at her side.

Canadian political uncertainty and evolving regulatory policies

In the months leading up to the recent federal election, there was significant uncertainty surrounding anticipated regulatory changes to the construction industry. This resulted in a wait and see mentality with respect to anticipated and ongoing projects, extending contract timelines, and project costs.

As the newly elected government under Prime Minister Mark Carney lays out its priorities in the coming months, clarity regarding new housing and construction policies may alleviate industry uncertainty.

"While contractually managing risks is a challenge undertaken by legal advisors, our advisory team assists clients by modelling out the potential financial exposure related to different risks to allow them to make more informed decisions."
Chetan Sehgal, Partner, Head of Infrastructure

Approaches to ease contract management and risk pain points

There are multiple solutions that can be applied to mitigate the types of contract risk emerging in today’s market.

This obligates both the contractor and developer/project owner to share project risk. It’s a potential solution to ease challenges emerging from volatile market conditions.

This is another emerging collaborative approach embraced as a solution. With IPD, both sides work together to create shared definitions of success, costs traditionally negotiated independently are pooled together, and a shared delivery schedule is established. By aligning the interest of both parties, IPD prioritizes success over individual self-promotion.

This approach includes clauses that address uncertainties—such as extended timelines or cost escalations—by clearly allocating risks between the contracting parties. These types of clauses became more common following the COVID-19 pandemic, helping both owners and contractors navigate unforeseen challenges with greater clarity and fairness. Embracing proactive contract management from day one is essential to identify and mitigate risks before they escalate into delays, cost overruns, or disputes. Ensuring contracts are well-structured, documentation is robust, and compliance is maintained throughout the project enhances project certainty and strengthens the position if claims or disputes do arise.

This continues to be a popular solution. In recent years, there have been an increasing number of requests to act as a neutral watchdog to ensure that each party take care of their associated responsibilities. This is used to enforce party accountability and ensure challenges to time and cost are proactively managed to keep the project on track. By aligning the interests of the two parties, both sides prioritize the success of the project.

“We are seeing more and more requests to explore options to be a neutral watchdog, making sure that each party is holding up their end of the bargain. This not only keeps everyone accountable but also ensures the speed bumps that may impact the critical path can be dealt with proactively and keep the project on track,” says Sehgal. “The willingness I'm seeing across the board to meet in the middle from all corners of the construction industry is proof positive. And when that happens, everybody wins.”

How we can help

It’s essential to understand how evolving economic conditions impact your business. We help our clients develop contract and risk management solutions, including price remodelling, contract administration, project management and controls, claims management, and dispute avoidance.

Contact us to learn how we can help assess your project, identify hidden contract risks, create a going-forward negotiation plan, or navigate a lawsuit.

For more information, contact: 

Chetan Sehgal, Partner, Head of Infrastructure

Sathish Kumar, Director, Construction Advisory and Disputes