If you’re a small contractor in the Chicago area, you already feel it: the cost of materials keeps climbing, good workers are harder to find, and the bids you submitted six months ago wouldn’t pencil out today. Welcome to 2026.
The question isn’t whether costs are going up. They are. The question is whether your bids reflect that reality—or whether you’re locking yourself into jobs that eat your profit before you break ground.
The Cost Picture Right Now
The numbers are hard to ignore. According to the Associated General Contractors of America (AGC), steel and aluminum tariffs were raised to 50 percent in mid-2025, and broad tariffs covering most imports from nearly all major trading partners were activated shortly after. The producer price index for aluminum mill shapes climbed 22.8 percent year-over-year as of late 2025. Steel mill products were up 13.1 percent. Lumber and plywood increased 4.8 percent.
These aren’t abstract numbers. If you’re buying structural steel, aluminum framing, copper wire, or even basic concrete components, your material costs in 2026 are materially higher than they were when you last priced a comparable job.
On top of materials, labor costs continue to rise. Construction wages have been increasing more than 4 percent annually, according to AGC data. The industry needs an estimated 349,000 net new workers in 2026 just to keep pace with demand, according to Associated Builders and Contractors (ABC). That shortage gives experienced tradespeople leverage—and it means the crew you need for your next project may cost more than you budgeted.
Why Fixed-Price Bids Are Getting Riskier
For decades, the fixed-price bid has been the standard in residential and small commercial work. You estimate your costs, add your margin, and submit a number. If you estimated right, you make money. If you didn’t, you eat it.
In a volatile cost environment, that model puts all the risk on you. A 20 percent increase in your material costs on a $200,000 project wipes out $40,000. If your margin was 15 percent, you just went from a profitable job to a loss.
That doesn’t mean you should stop bidding fixed-price work. It means you need to bid smarter.
Strategies That Protect Your Margin
- Build in Material Escalation Clauses
An escalation clause allows you to adjust the contract price if material costs increase beyond a defined threshold—typically 3 to 5 percent—after the bid date. This is increasingly common in commercial work and is becoming more accepted in residential projects as well.
The clause should reference specific materials (steel, lumber, concrete) and tie adjustments to a published index like the Bureau of Labor Statistics Producer Price Index. This gives both you and the client an objective, verifiable basis for any adjustment.
- Add a Labor Float to Your Schedule
With skilled workers in short supply, projects are taking longer. Industry sources suggest adding a 10 to 15 percent labor float to your project timelines to account for potential delays caused by crew availability.
Longer timelines mean higher carrying costs—insurance, equipment rental, supervision. Your bid needs to reflect the schedule you can actually deliver, not the one you hope for.
- Price Overtime Into the Bid
When you’re running lean on labor, overtime becomes the default way to stay on schedule. But overtime can double your effective labor rate. If you don’t include it in your estimate, it comes straight out of your margin.
Be honest with yourself about how much overtime a project will require and include it as a line item. Clients respect transparency, and it’s far better than coming back with a change order mid-project.
- Lock in Material Prices Early
If cash flow allows, consider purchasing or reserving key materials as early as possible. Some contractors are locking in steel and lumber at current prices and storing it—accepting a small storage cost in exchange for protection against further increases.
Even if you can’t buy early, get firm quotes from suppliers with defined hold periods. A 30-day price guarantee on your major materials gives you confidence when you submit your bid.
- Be Selective About What You Bid
In a tight labor market with rising costs, not every job is worth chasing. Focus on projects where you have a clear competitive advantage—your trade specialty, your geography, your relationships.
A job you win at a bad price is worse than a job you don’t win at all.
Don’t Forget Your Insurance Costs
Here’s something many contractors overlook in their estimates: insurance costs are rising too. If material costs go up, the value of the work you’re insuring goes up. If you’re hiring more workers or paying higher wages, your workers’ comp premium follows.
Make sure your bid includes realistic insurance overhead. If you haven’t reviewed your policies recently, now is the time—before you lock in a price on a project that runs through the end of the year.
Bottom Line
The contractors who will thrive in 2026 are the ones who price for reality, not for optimism. Build cost escalation into your contracts. Plan for the labor market you actually have. And make sure your insurance program keeps pace with the work you’re taking on.
If you need help understanding how your insurance costs factor into your bids, or if you want to make sure your coverage matches the size and scope of your current projects, give Handzel & Associates a call at (773) 725-6767 or visit handzel.com.
Handzel & Associates | Schaumburg, IL | Practical Advice for Chicagoland Contractors