Engineering and Construction Costs Climb in February

Industry Insights from Next Move Strategy Consulting

Engineering and construction costs continued their upward trajectory in February, reflecting sustained inflationary pressure across materials, equipment, and subcontractor labor. According to the Engineering and Construction Cost Indicator, the headline index rose to 62.6 in February, up from 56.4 in January, signaling broad-based price increases throughout the sector.

This rise highlights intensifying cost pressures driven by strong demand for key materials, increasing subcontractor pricing, and ongoing supply chain and workforce challenges. As a leading gauge of wage and material inflation within the engineering, procurement, and construction industry, the indicator underscores mounting financial and operational pressures affecting project execution and planning.

Material and Equipment Costs Drive Upward Momentum

Material and equipment costs emerged as a major contributor to February’s cost escalation, with the corresponding sub-indicator rising by 5.9 points to reach 62.2. Price increases were recorded in 10 out of the 12 monitored material categories, demonstrating widespread cost inflation across critical construction inputs.

Copper-based wire and cable registered the most significant gains, achieving the highest indicator score among tracked components. Ocean freight costs from Asia and Europe to the United States also rose notably, adding further strain on procurement budgets. Alloy steel pipe and fabricated structural steel experienced moderate price increases, while electrical equipment and transformers saw slight declines but remained under sustained pricing pressure.

In contrast, certain materials such as ready-mix concrete and ANSI pumps and compressors recorded the largest month-over-month decreases. Despite these isolated declines, overall material cost indicators point toward continued inflationary trends driven by rising metal prices, particularly copper and zinc, which are affecting the availability and pricing of electrical equipment, including transformers and switchgear.

Jason Kaplan, Director at S&P Global Market Intelligence, noted that demand from communications and computing sectors continues to support strong pricing for copper-based cables. However, reduced copper wire imports following tariff measures have added further upward pressure, with cable prices expected to remain elevated through 2026.

Subcontractor Labor Costs Show Strong Regional Increases

Subcontractor labor costs also recorded a substantial rise, with the sub-indicator increasing by 7.1 points to reach 63.5 in February. This reflects stronger pricing momentum across multiple regions and construction disciplines.

Regional data reveals varied trends across North America. The U.S. Midwest experienced moderate gains, particularly in mechanical and instrumentation and electrical (I&E) disciplines. The South demonstrated firm pricing conditions, with I&E reaching elevated levels. The Western United States reported the most pronounced increases, with mechanical and I&E costs reaching peak levels among tracked regions.

Canada also reflected sustained cost pressure, particularly in Western Canada, where pricing increases were consistent across all disciplines. Eastern Canada presented mixed trends, with strong increases in certain areas while others remained stable.

These developments reflect ongoing labor shortages and workforce constraints, which continue to influence subcontractor pricing and project timelines.

Future Cost Expectations Signal Continued Inflation

Forward-looking indicators suggest that cost pressures are unlikely to ease in the near term. The six-month headline expectations indicator rose sharply to 75.6 in February, reflecting strong expectations of continued cost increases across materials and labor.

The materials and equipment expectations index increased significantly to 73.1, with all tracked categories exceeding the neutral threshold. Alloy steel pipe and ANSI pumps and compressors recorded particularly large increases in future price expectations, alongside fabricated structural steel and carbon steel pipe.

Similarly, subcontractor labor cost expectations climbed to 81.3, indicating strong upward momentum. Regional gains were particularly evident across the U.S. Northeast, Midwest, South, and West, reinforcing expectations of sustained labor cost inflation in the coming months.

Supply Chain Constraints and Labor Shortages Intensify Industry Challenges

Industry respondents highlighted persistent supply chain disruptions and workforce shortages as key contributors to rising costs and operational challenges. Shortages of general laborers, pre-cast piles, and medium voltage cable are affecting project execution, while transmission and substation steel manufacturers are operating at full capacity, raising concerns related to quality and delivery timelines.

Suppliers across various material categories are also facing difficulties meeting contractual delivery schedules due to sub-supplier disruptions, workforce constraints, and capacity limitations. These challenges are further compounded by rising metal prices, which continue to affect electrical equipment production and availability.

Collectively, these conditions are contributing to elevated construction costs and increasing uncertainty across engineering and construction projects.

Next Move Strategy Consulting’s Point of View

According to Next Move Strategy Consulting, the continued rise in engineering and construction costs reflects structural shifts in supply chain stability, labor availability, and material demand. Persistent inflation in critical materials such as copper-based components and structural steel, combined with subcontractor labor shortages, is likely to increase project costs and influence investment timelines.

This environment may accelerate strategic adjustments across the construction ecosystem, including enhanced supply chain planning, procurement optimization, and greater emphasis on cost-efficient construction methods. Rising cost expectations also indicate that companies may prioritize efficiency, risk management, and long-term supplier partnerships to maintain operational resilience amid sustained pricing pressure.

Source: S&P Global Market Intelligence

Prepared by: Next Move Strategy Consulting