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
| Apr 10, 2012
Moriarty & Associates selected as GC for Miami’s BrickellHouse Condo
Construction of the 46-story development is schedule to get underway this summer and be completed in 2014.
| Apr 6, 2012
Flat tower green building concept the un-skycraper
A team of French designers unveil the “Flat Tower” design, a second place winner in the 2011 eVolo skyscraper competition.
| Apr 6, 2012
National Association of Women in Construction forum to be hosted in Philadelphia
The April Forum, titled “Declare your Independence!” will feature educational sessions on topics ranging from Managing the Generation Gap and Dealing with Contract language across state borders to Strategic and Succession Planning.
| Apr 6, 2012
Rooftop solar energy program wins critical approval from L.A. city council
Los Angeles Business Council applauds decision allowing LADWP to create new national model for rooftop solar energy
| Apr 6, 2012
Batson-Cook breaks ground on hotel adjacent to Infantry Museum & Fort Benning
The four-story, 65,000-ft property will feature 102 hotel rooms, including 14 studio suites.
| Apr 6, 2012
Perkins Eastman unveils Qatar mixed-use sports complex
Home stadium for Lekhwiya Club a vibrant addition to Doha’s architectural identity.
| Apr 5, 2012
5 tips for a successful door and window retrofit
An exclusive tip sheet to help the Building Team manage door and window retrofits successfully.
| Apr 4, 2012
Educational facilities see long-term benefits of fiber cement cladding
Illumination panels made for a trouble-free, quick installation at a cost-effective price.