Insights & Events

2026 is shaping up to be a perfect storm for more – and more complex – disputes in the engineering, construction, and government contract fields. The second Trump administration, as promised, is proving to be a force disrupter in multiple areas that will directly impact the nature and volume of litigation in these fields. As a result, contractors and project owners alike will increasingly find themselves in the litigation cross hairs, as stakeholders’ appetites increase to chase cost recovery from a widening array of targets.

Coming out of the Covid-19 pandemic, project costs and schedules both increased and became less predictable because of supply chain disruptions. While supply chains have now largely stabilized, other destabilizing factors have emerged. The labor supply is perhaps the single biggest cost and schedule driver on complex engineering and construction projects. But labor supply, particularly skilled labor, is shrinking significantly from a combination of the administration’s increased immigration enforcement and an aging labor force. As Boomers and Gen Xers retire, they are not being replaced in adequate numbers by younger tradespeople. The labor market is now a recognized choke point and substantial project risk on complex construction projects – one that is increasingly addressed expressly in engineering/construction contracts, builders’ risk policies, and surety bonds.

The administration’s trade policy also injects uncertainty and cost risks to construction projects, both because of the imposition of tariffs (at frequently shifting levels) on key building materials such as steel, lumber, aluminum, and copper, and construction equipment like cranes, bulldozers, compressors, and pumps; and also from tighter “Buy American” requirements that create supply-side pressure.

Regulatory reform already passed or on the horizon creates further risk and uncertainty. The administration is proposing substantial revisions to the FAR that will streamline the federal procurement process but will also fundamentally change the way federal contracts are awarded. https://www.acquisition.gov/far-overhaul. The idea is to give contracting officers greater discretion and flexibility in making contract award decisions to reward non-traditional elements, such as innovative risk sharing arrangements, thus moving away from the standard (even boilerplate) terms in solicitations that have long been familiar to contractors. At the same time, the administration has or will be pushing a number of additional initiatives that impact federal contracting, including: (i) imposing stricter cybersecurity requirements for defense contracts requiring compliance certifications during contract performance (DFARS 252.204-7021); (ii) adding new requirements in all federal contracts for safeguarding Controlled Unclassified Information (CUI) (https://www.federalregister.gov/documents/2025/01/15/2024-30437/federal-acquisition-regulation-controlled-unclassified-information); (iii) making changes to cost accounting standards; and (iv) imposing more stringent rules regarding the use of AI in federal projects, including adherence to “Unbiased AI Principles” (including ideological neutrality) in AI language models used on federal contracts (https://www.whitehouse.gov/wp-content/uploads/2025/12/M-26-04-Increasing-Public-Trust-in-Artificial-Intelligence-Through-Unbiased-AI-Principles-1.pdf). These changes create substantial new compliance costs and increase the risk of enforcement actions and contract terminations by the government for noncompliance, as well as an increased risk of False Claims Act liability.

All these factors, taken together, are expected to impose higher costs, risks, and uncertainty on many engineering and construction projects. And when pressure on the industry increases, so too does the incentive to resort to litigation to seek cost recovery from any conceivable target as a way to compensate for tighter margins and less-certain contract payments. In-house counsel at engineering and construction firms need to prepare for this fast-evolving landscape.

— By Stephen A. Klein