Picture a fixed-price bid won in late 2024 — a mid-size commercial renovation, healthy margin, everything penciled in tight. Then Canadian lumber duties jumped from 14.5 percent to 35 percent over a span of weeks, aluminum moved up 23 percent year-over-year, and steel added another 13 percent on top. Framing costs alone rewrote the job’s economics before the slab was poured.
That scenario describes what volume contractors across the country ran into as 2025 turned into 2026, and it’s the kind of materials exposure that Chris Rapczynski — who founded Sleeping Dog Properties in Boston in 1993 and has led it through three decades of luxury design-build work — has structured his firm specifically to avoid. Which is why the 8 percent aggregate cost increase projected for U.S. construction this year reads very differently depending on which tier of the industry you operate in.
The math for volume contractors
At scale, with multiple fixed-price projects running simultaneously, an 8 percent materials escalation isn’t a line item problem — it’s a margin problem. A 20 percent rise in key materials can eliminate at least half the expected profit on a typical job. For firms operating on the compressed margins typical of mid-market general contracting, that math can turn a profitable year into a break-even one, or worse.
Michael Guckes, chief economist at Construct Connect, put it plainly in the firm’s 2026 outlook: firms have been sacrificing their profit margins to help keep prices stable, but that is only a temporary fix. What that signals is that the industry has been absorbing cost increases rather than passing them through — and that absorptive capacity is running out.
Materials hitting hardest aren’t obscure inputs. Steel, aluminum, copper, and structural lumber make up the backbone of virtually every project. When the Commerce Department’s countervailing and anti-dumping duties on Canadian lumber — the source of roughly 85 percent of U.S. lumber imports — crossed the 35 percent threshold last August, the impact traveled down the supply chain to screws, nails, bolts, and fasteners, not just framing lumber. Tariff exposure now ranges from 5 to 25 percent depending on material type, with the baseline having been revised multiple times since early 2025 and no clear signal of stabilization.
Contract language is adapting. Escalation clauses tied to commodity indices are now standard rather than exceptional, a structural shift that signals the industry no longer expects predictable input pricing. But escalation clauses help only as much as a client is willing to accept them — and in competitive bid environments, pushing cost variability onto owners means losing the bid.
Where luxury design-build sits in this picture
Rapczynski founded Sleeping Dog Properties in Boston in 1993, starting with residential renovation work in Back Bay and building across three decades to a portfolio of more than $500 million in completed projects. The firm operates across high-end residential, boutique commercial, and hospitality work in Beacon Hill, the South End, the Seaport, and surrounding neighborhoods — the kind of geography where the word “budget” often means something different than it does elsewhere.
From that vantage point, the 8 percent materials spike lands differently.
Rapczynski has spoken directly about how external cost pressures require a different orientation than crisis response. “We’ve really tried to lean up our operational business format and do more with less, try to be flexible for people’s lives and be adaptable to change and not let that change be a moment of stress,” he said in a recorded interview. “Flexibility, adaptability, and resilience to the anxiety, creating chaos moments is where our mindfulness is — it’s a longer-term perspective of things.”
That longer-term posture is built into how Sleeping Dog Properties takes on work. A luxury design-build firm doesn’t run 30 active jobs simultaneously. It runs fewer, larger projects, each with margins that allow for real-time cost conversations — not adversarial change order negotiations, but genuine dialogue with clients who selected the firm precisely because they expected transparency. When lumber duties move, that conversation happens. Cost passes through with documentation, explanation, and in most cases, the client’s full awareness. Absorbing the cost to protect the relationship is a choice available to a firm with margin depth, not a vulnerability.
Volume contractors rarely have that flexibility. A general contractor holding a fixed-price bid on a $4 million renovation doesn’t have the same latitude to call the client and explain that framing costs have moved. The contract says what it says. And in competitive segments where bids are won at thinner margins, the pressure to hold the number — at least through a first billing cycle — is real.
Project selectivity as a cost hedge
A deeper insight from Rapczynski’s model isn’t about client relationships, though those matter. It’s about what you take on.
Project selectivity functions as risk management. Choosing fewer projects with higher complexity and established client trust isn’t just a business preference — it’s a structural hedge against the kind of materials volatility the industry is working through right now. A firm that takes on six carefully chosen projects per year rather than 40 competitively bid ones has more lead time to price materials accurately, more leverage to lock in supply agreements, and more flexibility in project schedules if material deliveries shift.
Sourcing plays a role here, too. Luxury build at the $2–10 million range often involves specialty materials and custom fabrication that aren’t exposed to commodity tariffs in the same way framing lumber and structural steel are. Period-accurate millwork, custom ironwork, architectural glass — these are procured through established relationships with specialty suppliers, often well in advance of construction. That procurement profile insulates the project from the spot-market volatility driving most of the cost escalation heading into 2026.
Boston’s specific exposure
Boston adds complexity that national figures don’t fully capture. National construction costs increased 2.8 percent year-over-year in January 2026 on aggregate, but market variations are substantial — Chicago, for instance, saw cost escalation approaching double digits in the same period. Boston’s construction labor market carries its own tightness, driven by union wage structures and a limited pool of craftspeople trained in historic renovation work.
For Sleeping Dog Properties, that labor profile is a feature rather than a liability. Subcontractor relationships built over 30 years of repeat work in Back Bay and Beacon Hill represent a different kind of asset than commodity supply chains. Subcontractors who know a firm’s standards, who have worked with its project managers for years, and who understand the regulatory expectations of Boston’s historic districts don’t reprice on short notice. Continuity carries its own economic value, even when everything else is moving.
Contrast that with mid-market contractors competing for the same Boston work — firms that rebuild subcontractor rosters project by project, soliciting bids, selecting low-cost options, cycling through relationships. Those firms have no buffer against the secondary effects of materials escalation. Labor costs follow materials costs. When framers and ironworkers see their own material costs spike, their bids adjust to account for uncertainty, whether or not the base wage moved.
The client structure matters
Luxury design-build firms tend not to talk about cost management the way volume contractors do, and the reason is structural. Cost conversations happen upstream — in how projects are scoped, how timelines are set, and what kind of contract structure both parties agree to before a shovel moves.
Chris Rapczynski’s firm works with clients who are operating in a market where trust is the primary selection criterion. Nobody spending $3 million on a Back Bay renovation chose their contractor because of the lowest bid. They chose based on portfolio, referral, track record in specific neighborhoods, and confidence that the firm would handle complexity without drama. That relationship changes the economics of cost escalation at a fundamental level.
A client who selected you because of capability and accountability will hear a materials conversation. A client who selected you on price is one you cannot afford to have that conversation with — not without jeopardizing the job or the relationship.
What 8 percent actually means
The 8 percent figure is a national aggregate built on projections from ULI economists and industry cost analysts, reflecting an environment where tariffs on Canadian lumber, steel, aluminum, and mechanical components have accumulated without corresponding productivity gains or supply-chain alternatives to absorb them. Rapczynski acknowledged the pressure plainly: “Right now as a builder, we are up against high material costs — tariffs between our two importing countries, Canada and Mexico, anything comes in here is going to be taxed. And that’s a threat. So we have to be adaptive.”
For volume contractors working on thin margins across many projects, 8 percent is a serious number. It’s the difference between a viable year and a restructuring conversation.
For a luxury design-build firm with Rapczynski’s project profile — selective, relationship-driven, high-margin, and long-tenured with its subcontractor base — 8 percent is a cost that can be explained to a client over a phone call and documented in a revised schedule of values. Not because luxury builders are insulated from supply chains. Because they built a business model that doesn’t depend on pretending supply chains are stable.
That’s not a small distinction. In 2026, it might be the whole business.
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