By Rick Lloyd and Oliver Fox, senior directors, MGAC
The construction industry is used to navigating volatility, even if 2025 has certainly brought a unique lineup of challenges.
Persistent inflation, supply chain disruptions, rising material costs, tariffs and skilled labor shortages affect all budgets. More broadly, market uncertainty can make owners, investors and contractors understandably more conservative about cost. At the same time, public and private organizations are under growing pressure to meet ambitious carbon and energy performance mandates.
This combination of market conditions has put additional pressures on the role of project cost management, but it has also created opportunities to think more proactively about strategizing costs more efficiently. Ultimately, cost managers can use certain best practices to help ensure more effective project outcomes and mitigate risks.
Unlike in Europe and the United Kingdom, where carbon mandates are more consistent and mature, such policies in the United States are less consistent, in part because standards can vary significantly by state or city. Some states, such as California and Massachusetts, have more progressive embodies systems for tracking carbon usage and stricter building performance requirements. Generally, however, U.S. developments and capital projects focus first on project costs, then factor in carbon and energy performance as secondary considerations.
But the landscape is shifting, regardless of how one may feel about it. Public agencies, universities and healthcare systems — to name a few sectors — increasingly issue requests for proposals (RFPs) that tie procurement decisions to sustainability. These owners want to know that their projects will not only be affordable to build, but also compliant with future regulations and cost-efficient to operate in the long term.
In general, we find that clients are enthusiastic about embracing cost management to achieve sustainability, but the private sector may often need to see more demonstrably how these practices help the bottom line of projects.
Here are some best practices to consider for making this goal reality:
Engage Early
Engaging in early-stage cost-planning will help ensure a project’s success more effectively, helping to distribute costs appropriately across the building’s systems and align them with project sustainability goals.
Benchmarking, modeling and scenario-planning help establish realistic budgets and identify priorities in a more strategic way when done early. This is especially important when market volatility can threaten to drive up costs. For example, if energy efficiency is a priority, cost-modeling can allocate more funds to the mechanical and electrical systems, while offsetting this increase with cost reductions in other systems, such as finishes.
Think About the Project Life Cycle
Tight budget constraints can push teams toward more efficient cost estimates, but failing to analyze a project’s life cycle can hurt the long-term utility and investment value.
For example, sometimes higher initial costs on more durable or energy-efficient materials may reduce operating expenses, extend asset life and avoid future upgrades to meet evolving needs and codes. Owners and investors benefit from a more complete picture of return on investment.
Proactive Procurement
Escalating materials prices and unpredictable supply chains can be mitigated through early trade buyouts, bulk purchasing and price-lock agreements. Using local suppliers, recycled materials (such as steel) or alternatives like cross-laminated timber can provide a degree of stability to go with sustainability benefits.
Embrace the Circular Economy
Rather than treating construction materials as single-use, steel, concrete and other core building materials can be kept in circulation for as long as possible. This reduces landfill waste and cuts the carbon footprint of new construction. Beyond materials, the concept is broadening to include enhancements to biodiversity within and around buildings — i.e. projects giving back to the ecosystem.
Carbon Tracking
Tracking embodied carbon alongside cost is becoming more standard in the United States. By quantifying emissions from concrete, steel and other materials in financial terms, cost managers can show clients where substitutions reduce carbon without undermining budgets. This approach also helps owners prepare for today and tomorrow’s regulations.
Strategic Cost Offsets
Sustainable solutions or alternative materials can sometimes carry a cost premium initially.
Owners can work with cost managers to reallocate or redistribute expenses (strategically) across the broader project budget. By taking a holistic view of costs — considering operational savings, long-term life cycle value and opportunities for efficiency elsewhere — costs can be offset. This approach ensures that sustainability goals remain achievable without sacrificing financial viability.
Many of these tactics are seeing more enthusiastic adoption in nonresidential sectors. But even multifamily projects, which have more of a build-to-sell approach, especially in the condo market, are seeing that legislation is starting to dictate change. In other words, even in 2025, a prudent, proactive cost management approach is increasingly essential. And done well, cost management proves that sustainability and fiscal discipline are not in conflict.