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 3, 2012
Trimble to acquire WinEstimator
Acquisition adds estimating software solutions to Meridian Systems’ portfolio.
| Jul 3, 2012
Summit Design+Build completes Emmi Solutions HQ
The new headquarters totals 20,455 sq. ft. and features a loft-style space with exposed masonry and mechanical systems, 17-ft clear ceilings, two large rooftop skylights, and private offices with full glass partition walls.
| Jul 3, 2012
TOLK now called Dewberry
The renaming indicates a simplification in Dewberry’s corporate naming conventions.
| Jul 2, 2012
Bernards building mixed-use project in Beverly Hills
The project includes 88 luxury apartment homes atop a 14,000-sf Trader Joe’s market and a new coffee shop.
| Jul 2, 2012
San Francisco lays claim to the greenest building in North America
The 13-floor building can hold around 900 people, but consumes 60% less water and 32% less energy than most buildings of its kind.
| Jul 2, 2012
Plumosa School of the Arts earns LEED Gold
Education project dedicated to teaching sustainability in the classroom.
| Jun 29, 2012
SOM writes a new chapter at Cincinnati’s The Christ Hospital
The 332,000–sf design draws on the predominantly red brick character of The Christ Hospital’s existing buildings, interpreting it in a fresh and contemporary manner that fits well within the historic Mt. Auburn neighborhood while reflecting the institution’s dedication to experience, efficiency, flexibility, innovation and brand.
| Jun 29, 2012
Benjamin Moore Paints announces new CEO
Robert S. Merritt comes to Benjamin Moore with over three decades of management experience in the restaurant and food preparation and distribution industries
| Jun 29, 2012
Guardian launches industry’s first glass visualizer for interior design
Online tool allows designers to explore the possibilities of glass.
| Jun 28, 2012
Federal applications of renewable energy
U.S. Army Fort Knox: Using the Earth for space heating and cooling. The U.S. Department of Energy’s (DOE) Federal Energy Management Program (FEMP) facilitates the Federal Government’s implementation of sound, cost-effective energy management and investment practices to enhance the nation’s energy security and environmental stewardship.