Key Takeaways
- Canada’s economy grew modestly in 2025 (GDP ≈ 1.7 %), with construction GDP up 2.6 % but activity uneven due to private‑sector retrenchment and persistent cost pressures.
- Public infrastructure spending—driven by Bill C‑5, Bill C‑15, defence outlays and the Major Projects Office—has become the primary engine of construction growth, while residential and industrial building permits remain weak.
- Material‑price inflation has shown mixed signals: overall construction‑materials basket rose 3.4 % YoY in November 2025, but copper, concrete and masonry components saw double‑digit jumps, whereas structural steel rose only modestly and steel pipe/tube fell sharply.
- Labour market tightness is intensifying: construction unemployment rose to 6.4 % (Q3 2025), vacancies hit a multi‑year low, and average weekly earnings climbed 5.9 % YoY, underpinned by new union wage agreements.
- Productivity in construction remains depressed (‑8.1 % since the pandemic), hampered by retirements, skill gaps and slow technology adoption, which compresses margins and lengthens schedules.
- Forecasted bid‑price escalation is expected to rise modestly to 1.5‑2.5 % in 2026, then accelerate to 4.0‑5.0 % in 2027 as fiscal stimulus and pent‑up private demand release, potentially aggravating skill shortages and supply‑chain bottlenecks.
- A collaborative contracting approach—such as Progressive Design‑Build, Alliance or Target‑Cost models—offers a pathway to manage risk and improve outcomes, but success depends on project‑specific tailoring and genuine implementation of collaborative principles.
- Proactive talent development, early‑warning data analytics, and strategic risk allocation are essential for clients and contractors seeking certainty in a stabilizing yet still unpredictable market.
Economic Context and Construction Performance in 2025
2025 was a year of transition for Canada’s economy, marked by shifting trade policies and a retreat from globalization. Gross Domestic Product (GDP) is projected to rise 1.7 % for the year, with the Bank of Canada forecasting a more modest 1.1 % expansion in 2026. Construction‑specific GDP grew 2.6 % in Q3 2025, yet this figure masks a fragmented landscape: private investment remained sluggish, while public programs and infrastructure pipelines provided the backbone of activity. Persistent input‑cost pressures, liquidity constraints, and wavering confidence kept many projects on the sidelines, resulting in an uneven recovery across sectors.
Public vs. Private Investment Dynamics
Private sector investment bore the brunt of geopolitical tension and rising trade barriers, particularly in residential and industrial building construction. The RPS House Price Index declined for five consecutive months through November 2025, and residential building permits fell 8.5 % YoY in Q3 2025, signalling a challenging start for 2026. Industrial building construction also slipped, dropping 6 % quarter‑over‑quarter in Q3 2025, partly due to overbuilding in 2024 and trade‑related uncertainty. In stark contrast, public spending—amplified by infrastructure investment, defence spending, Bill C‑5, and the scope‑expanding Bill C‑15—has anchored growth. Civil‑engineering GDP surged 4.4 % quarter‑over‑quarter in Q3 2025, largely driven by the legislative momentum of Bill C‑5 and the Major Projects Office’s efforts to cut red tape and accelerate approvals.
Inflationary Trends and Material‑Specific Pressures
After an initial spike from U.S. tariffs and Canadian countermeasures, inflation eased toward year‑end, with the Consumer Price Index (CPI) settling at 2.2 % in October and November 2025—just above the Bank of Canada’s 2 % target. Construction‑materials inflation, however, remained more pronounced. Turner & Townsend’s weighted basket of materials and components rose 3.4 % YoY as of November 2025. Within this basket, copper pipe and tube jumped 14.6 %, copper cable increased 5.2 %, and concrete‑related items (paving, masonry units, ready‑mixed concrete) each climbed between 7.6 % and 8.0 %, propelled by robust infrastructure demand, raw‑material cost hikes, and transportation expenses. Structural steel showed a modest 1.2 % rise, while steel pipe and tube actually fell 15.3 %, reflecting divergent tariff impacts between the U.S. and Canada. Anticipated tightening of Canadian steel import duties—including reduced quotas and an additional surtax—is expected to reverse this trend, pushing costs upward and extending lead‑times.
Labour Market Challenges and Wage Growth
Labour conditions continued to hinder delivery. Construction unemployment climbed from 4.3 % in Q3 2022 to 6.4 % in Q3 2025 as contractor order books weakened. Vacancies fell to 3.0 % in Q3 2025, their lowest level since Q3 2017, indicating a shrinking pool of available workers. Consequently, average weekly earnings rose 5.9 % YoY in Q3 2025, a trend reinforced by newly ratified union wage agreements across several provinces that lock in multi‑year increases. Productivity, meanwhile, remains depressed—down 8.1 % since the pandemic—due to retirements outpacing recruitment, persistent skill gaps, and slower adoption of technology, which compresses margins and elongates project schedules.
Outlook for Cost Escalation (2026‑2027)
Looking ahead, Turner & Townsend estimates national bid‑price escalation will range from 1.5 % to 2.5 % in 2026, reflecting subdued GDP and limited project activity that keep price pressures in check. This projection exceeds the 1‑2 % range observed in 2025. Lagged fiscal stimulus and federal investment are expected to push escalation higher in 2027, to a band of 4.0‑5.0 %, as private‑sector pent‑up demand is released and major infrastructure programs commence. The simultaneous launch of numerous large projects could exacerbate skill shortages and strain supply chains, imposing a premium on already‑constrained resources and potentially reigniting inflationary pressures.
The Imperative for Collaborative Contracting
With workloads anticipated to firm up in the second half of 2026 and into 2027, the industry faces mounting volatility and shifting supply‑chain dynamics. A proactive, multi‑pronged strategy—spanning planning, procurement, and delivery—is essential to mitigate risks and capture long‑term benefits. Data indicate a growing preference for collaborative contract models such as Progressive Design‑Build (PDB), Alliance, or Target‑Cost arrangements. However, these frameworks must be selected based on project‑specific characteristics and thorough market sounding, rather than applied as a one‑size‑fits‑all solution. The true value lies not only in adopting the contract type but in embedding the collaborative mindset throughout the project lifecycle: balanced risk allocation, honest assessment of which party is best suited to manage each risk, and continuous, proactive risk management from inception to close‑out.
Leveraging Data and Talent for Future Resilience
To navigate the stabilizing yet unpredictable environment, organizations should harness internal project data, organizational insights, and broader market intelligence to identify cost and capacity issues early. Early‑warning analytics enable timely interventions that reduce the impact of escalating expenses or resource bottlenecks. Simultaneously, investing in local talent development—through expanded skilled‑trades training programs, apprenticeships, and upskilling initiatives—will be crucial to meet the labor demands of forthcoming multi‑billion‑dollar, multi‑year builds. While productivity gains may be gradual, a concerted effort to close skill gaps and incentivize technology adoption can improve efficiency, protect margins, and enhance schedule reliability.
Conclusion: Building Certainty in a Stabilizing Market
2025 underscored Canada’s capacity to absorb external shocks while reinforcing the need for strategic foresight. Public infrastructure investment continues to drive growth, yet private‑sector caution and cost pressures linger. Material‑price inflation remains uneven, labor markets are tightening, and productivity challenges persist. Forecasts suggest a gradual rise in bid‑price escalation, with a sharper uptick expected in 2027 as stimulus measures take effect. Success will hinge on embracing collaborative contracting philosophies, deploying data‑driven risk management, and proactively cultivating the skilled workforce necessary to deliver complex, high‑value projects. By transitioning from reactive coping to proactive delivery, clients and contractors can secure greater certainty and help Canada realize its ambition of building “made in Canada” solutions that strengthen national resilience and stimulate long‑term prosperity.