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
| Feb 18, 2014
Illinois leads Top 10 states for LEED in annual USGBC ranking
The U.S. Green Building Council has released its ranking of the Top 10 States for LEED, the world’s most widely used and recognized green building rating system.
| Feb 18, 2014
Study: 90% of healthcare providers say Affordable Care Act is 'step forward,' but major revisions needed
Providers are excited about opportunities to address long-term health issues in the U.S., but worries about the transition persist, according to a new study by Mortenson Construction.
| Feb 17, 2014
Developer plans to 'crowdfund' extended stay hotel in Manhattan
Want to own a piece of Manhattan hotel real estate? Developer Rodrigo Nino is inviting individual investors to put up $100,000 each for his latest project, 17 John.
| Feb 14, 2014
ASHRAE, Green Grid team up on energy-efficiency guide for data centers
Vendor-neutral publication examines aspects of the popular power usage effectiveness (PUE) metric.
| Feb 14, 2014
Scrap tires used to boost masonry blocks at Missouri University of S&T
Research could lead to blocks that use waste material and have seismic and insulating benefits.
| Feb 14, 2014
Giant interactive pinwheel adds fun to museum exterior
The proposed design for the Santa Cruz Museum of Art and History features a 10-foot pinwheel that can be activated by passersby.
| Feb 14, 2014
First look: Kentucky's Rupp Arena to get re-clad as part of $310M makeover
Rupp Arena will get a 40-foot high glass façade and a new concourse, but will retain many of its iconic design elements.
| Feb 14, 2014
The Technology Report 2014: Top tech tools and trends for AEC professionals
In this special five-part report, Building Design+Construction explores how Building Teams throughout the world are utilizing advanced robotics, 3D printers, drones, data-driven design, and breakthroughs in building information modeling to gain efficiencies and create better buildings.
| Feb 13, 2014
Why you should start with a builder
They say the best way to eat an elephant is one bite at a time. Expanding your building or constructing a new structure for your business, church, or school isn’t all that different. Attacking it is best done in small, deliberate pieces.
| Feb 13, 2014
Related Companies, LargaVista partner to develop mixed-use tower in SoHo
The site is located at the gateway to the booming SoHo retail market, where Class A office space is scarce yet highly in demand.