Financing solutions provider Billd recently surveyed nearly 900 commercial construction professionals across the U.S. for its 2023 National Subcontractor Market Report. Its key finding: rising input prices for materials and labor cost subcontractors $97 billion in unplanned expenses last year.
Rising material costs and price volatility are not new issues for subcontractors, with 81% of those surveyed reporting a negative effect on their businesses in 2022; 80% expect that trend to continue. It is no surprise given material costs jumped a staggering 26%, according to respondents. Similarly, competition for labor due to the longtime labor shortage was validated by a 15% average increase in labor cost. Together, those increases amounted to $97 billion in additional expenses for the subcontractor. While some subcontractors increased their bids to offset these rapidly rising costs, one third of respondents were unable to raise those bids commensurate with their expenses. This resulted in 57% of businesses reporting a decrease in profitability, despite 61% reporting revenue growth.
"Subcontractors are the foundation of the construction industry, providing all material and labor to complete a project," said Chris Doyle, CEO of Billd. "They purchase that material and pay for that labor upfront, not being paid for their work for 74 days, a result of the dysfunctional payment cycle. If you add unplanned expenses due to rising costs in material and labor, it puts an unrealistic burden on subcontractors to provide that foundation."
The report examines how macroeconomic conditions from this and prior years impacted subcontractors in 2022, as well as their outlook for 2023. It also creates hope by providing perspective on new financing options subcontractors can leverage as mainstays – like supplier terms – become less reliable. 72% of respondents report having supplier terms of 30 days or less. Compared to a 74-day average wait time for payment, it is no surprise that 51% deem the length of their terms insufficient.
Supplier terms also have an unforeseen cost; most suppliers (also surveyed) state that they offer discounts for upfront payment. Despite those disadvantages, 87% of respondents still rely on supplier terms as their predominant means of buying materials. When it comes to funding their increasing labor costs, traditional financing options are even less accessible, leaving 87% of respondents coming out of pocket for labor before getting paid themselves. Luckily, the report highlights financial relief for labor as well as materials.
Related Stories
Codes and Standards | Sep 9, 2019
Free app calculates maximum allowable heights and areas for buildings
A free app that calculates the maximum allowable heights and areas for buildings of various occupancy classifications and types of construction has been released.
Retail Centers | Sep 6, 2019
Another well-known retailer files for bankruptcy: Here's the solution to more empty anchor stores
Where can you find the future of retail? At the intersection of experience and instant gratification.
Giants 400 | Sep 5, 2019
Top 85 Hotel Sector Construction Firms for 2019
Suffolk, Yates Companies, AECOM, Swinerton, and Turner top the rankings of the nation's largest hotel sector contractors and construction management firms, as reported in Building Design+Construction's 2019 Giants 300 Report.
Contractors | Sep 5, 2019
Katerra adds two GCs to its stable
UEB Builders and Fortune-Johnson General Contractors specialize in multifamily and mixed-used developments.
Giants 400 | Sep 4, 2019
Top 90 K-12 School Sector Construction Firms for 2019
Gilbane, Balfour Beatty, Turner, CORE Construction, and Skanska lead the rankings of the nation's largest K-12 school sector contractors and construction management firms, as reported in Building Design+Construction's 2019 Giants 300 Report.
Market Data | Sep 3, 2019
Nonresidential construction spending slips in July 2019, but still surpasses $776 billion
Construction spending declined 0.3% in July, totaling $776 billion on a seasonally adjusted annualized basis.
Giants 400 | Aug 30, 2019
2019 K-12 School Giants Report: 360-degree learning among top school design trends for 2019
K-12 school districts are emphasizing practical, hands-on experience and personalized learning.
Industry Research | Aug 29, 2019
Construction firms expect labor shortages to worsen over the next year
A new AGC-Autodesk survey finds more companies turning to technology to support their jobsites.
Codes and Standards | Aug 29, 2019
Industry leaders ask for government help as trades shortage worsens
AGC asks for more funding for education and increased immigration to fill gaps.
Giants 400 | Aug 28, 2019
Top 45 Data Center Construction Firms for 2019
Whiting-Turner, Turner, Holder, DPR, and Fortis top the rankings of the nation's largest data center sector contractors and construction management firms, as reported in Building Design+Construction's 2019 Giants 300 Report.