Backlog Confidence Grows, But Cash Flow Remains a Concern

The construction industry continues to move forward, though the signals are mixed. In April, average backlog climbed to 8.7 months, its highest point in nearly two years, according to Associated Builders and Contractors. Large-scale projects are driving much of the activity, and many remain confident about short-term staffing and profit margins.

At the same time, certain challenges are starting to stack up. Material prices are less predictable. Payments are taking longer to arrive. Mid-sized construction companies, in particular, are facing tighter competition for projects in key revenue ranges. These trends do not always show up in the headlines, but they are being felt on the ground.

In this environment, it helps to take a closer look at where growth is occurring, what risks may be building, and how businesses can adjust their approach to stay in a strong position.

Backlog Performance by Contractor Size

Construction backlog reached its highest level since September 2023. The increase reflects steady demand, but most of that growth is concentrated in large-scale work. While that headline is getting attention, it’s important to note that contractors of different sizes are experiencing different realities.

Projects over $100 million rose 2.2% over the past year and are driving the overall gains. Backlog for projects under $30 million increased just 0.2%. Activity in the $30 million to $50 million range fell 0.8%, and projects between $50 million and $100 million dropped 0.6%.

That’s putting pressure on mid-sized construction companies. While the overall market appears strong, those in the middle of the revenue range may be seeing fewer opportunities. If new work is slower to come in, now is the time to reassess pricing strategy, backlog coverage, and bid targeting.

Impact of Tariffs

Tariff-related costs are starting to affect more businesses. Prices are rising on a range of materials, including steel, aluminum, and manufactured goods from key trading partners. Rebar, fixtures, electrical components, and similar products are all seeing increases.

According to ABC, 87% of contractors have received notice of material price hikes tied to tariffs. In April, 22% experienced a project delay or cancellation because of these changes. That is up from 18% just one month earlier.

In May, the United States and China agreed to a 90-day pause in tariffs. As part of the agreement, the U.S. lowered tariffs on Chinese goods from 145% to 30%. China reduced its tariffs on U.S. imports from 125% to 10%. This pause is expected to last through mid-August. While it brings some short-term relief, the longer-term outlook is still uncertain.

This is an opportunity to revisit contract language, source materials more broadly, and keep open lines of communication with clients. It is also a good time to run updated forecasts and evaluate how rising costs could affect future jobs.

Short-Term Optimism and Long-Term Planning

Confidence in the short term remains steady. Many are working through active backlogs and seeing a regular flow of opportunities. According to ABC’s April data, most expect margins and staffing levels to hold.

Still, there are signs that some are beginning to plan more cautiously. The share of contractors who expect sales to decline in the next six months increased to 19% in April. That is a six-point rise since January.

Those that have not already done so may want to review the lined up for workload later in the year. Looking at when projects are set to begin or wrap up can reveal slower spots in the schedule. Adjustments now may help prevent issues down the line.

Strengthening Financial Strategy

Most established construction companies already have strong systems in place to track costs and manage cash flow. But with current market conditions, it’s best practice to revisit strategies and build in more flexibility. Key areas to focus on include:

Cash Flow: Payment delays are stretching longer. The majority of contractors are waiting more than 30 days to get paid. Businesses that stay watch accounts receivables and align billing with job progress are in a better position to manage near-term cash needs without outside financing.

Forecasting: Looking ahead is challenging in this environment. Reviewing labor plans month by month, watching for overtime or staffing needs, and adjusting budgets for price changes can improve forecast accuracy.

Job Costing: Tracking labor, materials, and overhead in real time makes it easier to catch problems early. When scope changes or price increases happen, having updated numbers on hand can help teams react quickly.

Work-In-Progress: WIP reporting helps show how far along each job is and whether it is tracking as expected. It can flag underbilling, identify issues with profit, and support more informed planning.

Strategic Bidding: A full backlog creates room to be selective. Focusing on jobs with stronger margins or more favorable terms can ease pressure on teams and improve financial outcomes. Adding escalation clauses or price buffers can help manage risk.

Risk Management: Every job carries risk. Supply chain issues, labor shortages, weather, cybersecurity, etc. Flagging those risks early and planning for them helps keep projects on track.

Conclusion

There is still plenty of momentum in the market. Contractors that continue to plan carefully, manage risk, and stay close to the numbers will be in the best position to navigate what comes next. For more information, contact Jennifer French or Ryan Paul, Partners on PBMares’ Construction & Real Estate team.