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
| May 8, 2012
Skanska USA hires Zamrowski as senior project manager
In his new role at Skanska, Zamrowski will serve as the day-to-day on-site contact for select Pennsylvania-based projects during all phases of construction.
| May 8, 2012
Morgan/Harbour completes three projects at Columbia Centre
Projects completed on behalf of property owner, White Oak Realty Partners, LLC, Pearlmark Realty Partners, LLC and Angelo Gordon & Co.
| May 7, 2012
4 more trends in higher-education facilities
Our series on college buildings continues with a look at new classroom designs, flexible space, collaboration areas, and the evolving role of the university library.
| May 7, 2012
Best AEC Firms: MHTN Architects nine decades of dedication to Utah
This 65-person design firm has served Salt Lake City and the state of Utah for the better part of 90 years.
| May 7, 2012
2012 BUILDING TEAM AWARDS: TD Ameritrade Park
The new stadium for the College World Series in Omaha combines big-league amenities within a traditional minor league atmosphere.
| May 7, 2012
2012 BUILDING TEAM AWARDS: Fort Belvoir Community Hospital
A new military hospital invokes evidence-based design to create a LEED-certified facility for the nation’s soldiers and their families.
| May 7, 2012
2012 BUILDING TEAM AWARDS: Audie L. Murphy VA Hospital
How a Building Team created a high-tech rehabilitation center for wounded veterans of the conflicts in Iraq and Afghanistan.
| May 3, 2012
2012 BUILDING TEAM AWARDS: Rush University Medical Center
This fully integrated Building Team opted for a multi-prime contracting strategy to keep construction going on Chicago’s Rush University Medical Center, despite the economic meltdown.
| May 3, 2012
U of Michigan team looking to create highly efficient building envelope designs
The system combines the use of sensors, novel construction materials, and utility control software in an effort to create technology capable of reducing a building’s carbon footprint.