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
Giants 400 | Feb 8, 2024
Top 40 Museum Construction Firms for 2023
Turner Construction, Clark Group, Bancroft Construction, STO Building Group, and Alberici-Flintco top BD+C's ranking of the nation's largest museum and gallery general contractors and construction management (CM) firms for 2023, as reported in Building Design+Construction's 2023 Giants 400 Report.
Market Data | Feb 7, 2024
New download: BD+C's February 2024 Market Intelligence Report
Building Design+Construction's monthly Market Intelligence Report offers a snapshot of the health of the U.S. building construction industry, including the commercial, multifamily, institutional, and industrial building sectors. This report tracks the latest metrics related to construction spending, demand for design services, contractor backlogs, and material price trends.
Giants 400 | Feb 6, 2024
Top 40 Religious Facility Construction Firms for 2023
Crossland Construction, Haskell, Big-D Construction, Whiting-Turner, and JE Dunn Construction top BD+C's ranking of the nation's largest religious facility general contractors and construction management (CM) firms for 2023, as reported in the 2023 Giants 400 Report.
Giants 400 | Feb 5, 2024
Top 40 Entertainment Center, Cineplex, and Theme Park Construction Firms for 2023
ARCO Construction, Turner Construction, Whiting-Turner, PCL Construction Enterprises, and Balfour Beatty US top BD+C's ranking of the nation's largest entertainment center, cineplex, and theme park general contractors and construction management (CM) firms for 2023, as reported in the 2023 Giants 400 Report.
Giants 400 | Feb 5, 2024
Top 60 Shopping Mall, Big Box Store, and Strip Center Construction Firms for 2023
Whiting-Turner, Schimenti Construction, VCC, Ryan Companies US, and STO Building Group top BD+C's ranking of the nation's largest shopping mall, big box store, and strip center general contractors and construction management (CM) firms for 2023, as reported in the 2023 Giants 400 Report.
Laboratories | Feb 5, 2024
DOE selects design-build team for laboratory focused on clean energy innovation
JE Dunn Construction and SmithGroup will construct the 127,000-sf Energy Materials and Processing at Scale (EMAPS) clean energy laboratory in Colorado to create a direct path from lab-scale innovations to pilot-scale production.
Giants 400 | Feb 1, 2024
Top 40 Restaurant Construction Firms for 2023
Swinerton, Shawmut Design and Construction, Gray Construction, CM&B, and Andersen Construction top BD+C's ranking of the nation's largest restaurant general contractors and construction management (CM) firms for 2023, as reported in the 2023 Giants 400 Report.
Luxury Residential | Feb 1, 2024
Luxury 16-story condominium building opens in Chicago
The Chicago office of architecture firm Lamar Johnson Collaborative (LJC) yesterday announced the completion of Embry, a 58-unit luxury condominium building at 21 N. May St. in Chicago’s West Loop.
Products and Materials | Jan 31, 2024
Top building products for January 2024
BD+C Editors break down January's top 15 building products, from SloanStone Quartz Molded Sinks to InvisiWrap SA housewrap.
Giants 400 | Jan 29, 2024
Top 140 Office Core and Shell Architecture Firms for 2023
Gensler, Stantec, Page Southerland Page, Perkins&Will, and NBBJ top BD+C's ranking of the nation's largest office core and shell architecture and architecture engineering (AE) firms for 2023, as reported in the 2023 Giants 400 Report.