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
| Jul 16, 2013
Robotics: A new way to demolish buildings
A robot prototype uses water jets to break up concrete structures and then sucks up the water and debris for reuse and recycling.
| Jul 15, 2013
Zaha Hadid unveils plan for boutique condo development in New York
Related Companies taps the London-based architect for the 11-story 520 West 28th Street residential development adjacent to the High Line in Chelsea.
| Jul 15, 2013
Driggs named to lead Heery International
Rich Driggs has been named President of Heery International, following Bill Heitz, who retired on July 1st after 34 years with the company. Driggs is only the fourth leader of Heery International since George Heery founded the firm in 1952.
| Jul 12, 2013
12 award-winning healthcare projects [slideshow]
AIA's Academy of Architecture for Health announced the recipients of the 2013 AIA National Healthcare Design Awards.
| Jul 11, 2013
Pennsylvania legislators work on bill to update demolition codes following fatal building collapse
Pennsylvania lawmakers are working on a bill to update demolition codes, in the wake of a fatal building collapse in Philadelphia in June.
| Jul 11, 2013
Lawsuit challenges modular apartment project in New York City
A plan to build pre-fab apartment buildings at Atlantic Yards in Brooklyn, N.Y., has been challenged by a lawsuit filed by the Plumbing Foundation in Manhattan Supreme Court.
| Jul 10, 2013
World's best new skyscrapers [slideshow]
The Bow in Calgary and CCTV Headquarters in Beijing are among the world's best new high-rise projects, according to the Council on Tall Buildings and Urban Habitat.
| Jul 10, 2013
TED talk: Architect Michael Green on why we should build tomorrow's skyscrapers out of wood
In a newly posted TED talk, wood skyscraper expert Michael Green makes the case for building the next-generation of mid- and high-rise buildings out of wood.
| Jul 9, 2013
Where are they now? 40 Under 40 alumni make their mark in D.C.
Every month we’ll be touching base with past 40 Under 40 honorees to see what’s been happening in their professional and personal lives since winning the award. This month, we feature two outstanding professionals: HKS's Shannon Kraus and Roger Chang from Westlake Reed Leskosky.