Q U A R T E R LY R E P O R T
Q3 2026
Procurement
Market Update COMPETING FOR CAPACITY
AUTHORS David Hamilton
Senior Vice President, Construction Procurement Solutions
Doug Allen
Manager, Strategic Growth & Corporate Development STO Building Group
STOBG PROCUREMENT SENTIMENT
CONSTRUCTION INPUT PRICES
TRADE CAPACITY
Measured approach
Year-over-year
Key trades booked through year-end
43.0 (Q2: 44.0)
+8.9% (Source: ABC)
TIGHT
OUTLOOK
DIVERGING Data centers vs. all other sectors
ECONOMIC OUTLOOK
Construction inflation has re-accelerated. Input prices are up 8.9% year over year, with iron and steel, lumber, switchgear, and copper wire and cable each up more than 10% (ABC). In September, the Federal Reserve raised rates to 3.75–4.00%, its first hike since 2023. The market is diverging. Nonresidential building spending fell 7% through May, and the AIA consensus panel now expects a 0.3% decline for 2026 before 3.0% growth in 2027, with manufacturing down 11.6% (AIA). Contractors with data center work report 9.9 months of backlog versus 8.3 months for others (ABC). Data centers continue to absorb a disproportionate share of steel, electrical equipment, and skilled labor, tightening capacity for other sectors.
STOBG PROCUREMENT SENTIMENT INDEX*
KEY TAKEAWAYS 01 The market is diverging. Data centers are absorbing steel, electrical gear, and skilled labor, while most other sectors slow.
02 Capacity is now the constraint. Steel
fabricators, specialty trades, and electrical manufacturers are booked further out.
03 Early commitments protect budgets.
Securing production slots and releasing long-lead packages early can reduce cost and schedule risk.
INSIDE THE INDEX
The Index slipped to 43.0 in Q3 (Q2: 44.0, Q1: 47.5). Demand is the only component above the neutral mark; pricing pressure is the weakest. Regional readings were tightly clustered, with the Northeast slightly more cautious than the West, Canada, and Ireland.
Of STOBG Business leader respondents: • 36% report more RFPs and bid packages; none report fewer. • 55% see reduced subcontractor capacity, but 82% see stable financial health. *The STOBG Procurement Sentiment Index is an internal survey of STOBG business leaders across all commercial sectors and regions, including the UK, Canada, and Ireland, covering pipeline activity, cost trends, supply chain, subcontractor health, and forward outlook. Responses are indexed to a baseline of 50; above 50 indicates potentially improving conditions and below 50 potentially softening conditions. Local sentiment may vary.
• 45% report less stable vendor quotes; 36% see longer mechanical lead times. • 55% are slightly more negative on the next 12 months. • 90% report higher material costs, mostly in the 1-5% increase range.
P R O C U R E M E N T M A R K E T U P D AT E Q3 2026
MANUFACTURER VIEWPOINTS • Breaker supply is tight: Manufacturer production issues can push breaker deliveries out by months, affecting both small and large projects. • Quality control is worth watching: With manufacturers under heavy demand, quality issues, including production stoppages to investigate product quality, can add weeks to already long lead times. • Relationships and scale matter: CPS uses direct manufacturer partnerships and national buying power to escalate issues and secure equipment ahead of CM award. On average, that has cut lead times 32% and costs 31%. • Manufacturers are integrating: Many are taking more control of their own supply chains, buying companies that previously manufactured for them.
INDICATORS TO WATCH
01 Copper tariff decision: Refined copper is still undecided ahead of the Nov. 3 midterms; a 15% duty from January 2027, rising to 30% in 2028, is the option on the table (CRS).
02 Power demand: Energy Information
Administration forecasts record US electricity use in 2026 and 2027, driven by data centers; Texas has paused new data center grid connections until state audit is complete.
03 Rates: Fed officials’ median projection puts the policy rate at 4.1% at year-end (Fed); 10-year Treasury yield has topped 5.25% (Bloomberg).
04 AI Capex: Hyperscaler capex is projected at
$4.2 trillion through 2029, with a growing share debt-financed (WSJ), a key signal for how long demand persists.
TRADE PARTNER REALITIES
LABOR IMPACTS
• Pricing validity is shrinking: Some steel and specialty trade proposals are held for as little as 10 days, and pricing can lapse between bid and award, forcing renegotiation during buyout.
• Record-low unemployment: The construction unemployment rate fell to 3.1% in August, the lowest for any month in 26 years of data (AGC).
• Key trades are booked: Several structural steel, miscellaneous metals, and millwork subcontractors are committed through year-end and declining new work until 2027. • Conditions vary by region: Constraints are most acute in the Northeast and Bay Area; the Pacific Northwest reports more available capacity. • Paused or delayed projects carry repricing risk: When a project restarts or experiences an extended timeline, subcontractors may seek revised pricing, including tariff adjustments. • Subcontractor Default Insurance (SDI) remains an important backstop. Contact Christina Cahill at (917) 534 8782 or Christina.Cahill@STOBG.com for more information.
P R O C U R E M E N T M A R K E T U P D AT E Q3 2026
• Wages are accelerating: Construction hourly earnings rose 5.2% Y-o-Y in July, versus 3.2% across the private sector (AGC). In certain capacity-strained cities, we’re seeing electrician premiums of up to 20-40%. • Data centers compete for talent: Among firms reporting workforce effects from data center work, 58% cited greater competition for skilled workers and 49% higher wage pressure (AGC-NCCER).
MATERIALS IMPACTS / STRATEGIES STEEL MARKET Steel mill prices vs. Q3 ‘25
COPPER MARKET Copper, avg. $/t
ENERGY MARKET
+38% Y-o-Y
Brent crude, avg. $/bbl
+27% Y-o-Y
*Q3 ‘26 = latest data (Jul–Aug). Source: BLS PPI, Steel Mill Products (WPU1017).
*Q3 ‘26 = latest data (July). Source: IMF Global Price of Copper, via FRED.
*Q3 ‘26 = latest data (Jul–Aug). Source: EIA Short-Term Energy Outlook, Sept. 2026.
• US hot-rolled coil averaged about $1,240/ton in mid-September, vs. roughly $825-865 a year ago (SMU).
• LME copper set record highs in September, trading above $14,000/t (LME).
• Producer diesel prices were up 44% Y-o-Y in July, raising delivery and equipment costs (AGC).
• Availability is the bigger issue: large structural packages face ~12-month lead times, about double typical (STOBG teams).
• Semi-finished copper products such as wire and pipe carry a 50% Section 232 tariff (CRS).
• EIA expects Brent near $90/bbl through year-end, easing to $77 by Q2 2027 (EIA).
Steel availability, record copper prices, and elevated energy costs are layering onto project budgets at the same time. Reach out to Doug Allen for the most up-to-date data.
MITIGATION
POLICY WATCH
• Release long-lead packages early. Structural steel, switchgear, breakers, transformers, and generators should be identified as early as design allows. Work with CPS to reserve production slots and build factory inspections into milestones.
• Global tariffs: The 10% Section 122 surcharge expired July 24, replaced by Section 301 tariffs of 10-12.5% on imports from 60 countries.
• Carry tariffs as allowances. Where tariff costs can’t be locked, carry an allowance and reconcile it against customs and broker documentation. • Match award timing to price validity. Shorten the gap between bid and award, or negotiate validity periods that fit the schedule. • Protect trade partner capacity. Avoid overloading key subcontractors, prequalify alternates, and utilize SDI to reduce default risk.
• US–Canada: USMCA was not renewed at its July review. 50% US tariffs on certain Canadian goods (Aug. 22) and Canada’s 15-50% counter-tariffs (Sept. 8) now apply. • Lumber: A Commerce update due Oct. 1 could lead to new tariffs on hardwood lumber and products (softwood now 10%; cabinets and vanities 25%). • Data center power: More than 300 state bills have been filed in 2026 targeting who pays for data center power and how fast projects connect, and some propose pausing new data centers (MultiState).
QUESTIONS FOR OWNERS TO ASK 01 How long is our current
equipment pricing good for?
02 Can manufacturers itemize
tariff charges and provide supporting documentation?
03 Which long-lead items
should we release, or reserve production slots for, now?
Contact David Hamilton to learn how to implement these strategies on your next project.
P R O C U R E M E N T M A R K E T U P D AT E Q3 2026
CONSTRUCTION
PROCUREMENT SOLUTIONS
Questions about your project’s procurement exposure and strategies to mitigate?
GET IN TOUCH WITH US DAVID HAMILTON Senior Vice President Construction Procurement Solutions David.Hamilton@ConstructionProcurement.com 212.251.9389
DOUG ALLEN Manager, Strategic Growth & Corporate Development STO Building Group Douglas.Allen@stobg.com 929.243.2185
P R O C U R E M E N T M A R K E T U P D AT E Q3 2026