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
Sustainable Design and Construction | Oct 10, 2024
Northglenn, a Denver suburb, opens a net zero, all-electric city hall with a mass timber structure
Northglenn, Colo., a Denver suburb, has opened the new Northglenn City Hall—a net zero, fully electric building with a mass timber structure. The 32,600-sf, $33.7 million building houses 60 city staffers. Designed by Anderson Mason Dale Architects, Northglenn City Hall is set to become the first municipal building in Colorado, and one of the first in the country, to achieve the Core certification: a green building rating system overseen by the International Living Future Institute.
Contractors | Oct 10, 2024
How to get your construction team engaged and on board with new processes
Discover practical strategies to boost employee engagement and create a collaborative environment where your team feels valued and motivated to contribute to your company’s vision.
3D Printing | Oct 9, 2024
3D-printed construction milestones take shape in Tennessee and Texas
Two notable 3D-printed projects mark milestones in the new construction technique of “printing” structures with specialized concrete. In Athens, Tennessee, Walmart hired Alquist 3D to build a 20-foot-high store expansion, one of the largest freestanding 3D-printed commercial concrete structures in the U.S. In Marfa, Texas, the world’s first 3D-printed hotel is under construction at an existing hotel and campground site.
University Buildings | Oct 9, 2024
Des Moines University Medicine and Health Sciences opens a new 88-acre campus
Des Moines University Medicine and Health Sciences has opened a new campus spanning 88 acres, over three times larger than its previous location. Designed by RDG Planning & Design and built by Turner Construction, the $260 million campus features technology-rich, flexible educational spaces that promote innovative teaching methods, expand research activity, and enhance clinical services. The campus includes four buildings connected with elevated pathways and totaling 382,000 sf.
Student Housing | Oct 9, 2024
University of Maryland begins work on $148 million graduate student housing development
The University of Maryland, in partnership with Campus Apartments and Mosaic Development Partners, has broken ground on a $148.75 million graduate student housing project on the university’s flagship College Park campus. The project will add 741 beds in 465 fully furnished apartments.
AEC Tech Innovation | Oct 8, 2024
New ABC technology report examines how AI can enhance efficiency, innovation
The latest annual technology report from Associated Builders and Contractors delves into how artificial intelligence can enhance efficiency and innovation in the construction sector. The report includes a resource guide, a case study, insight papers, and an essay concerning applied uses for AI planning, development, and execution.
Healthcare Facilities | Oct 8, 2024
Herzog & de Meuron completes Switzerland’s largest children’s hospital
The new University Children’s Hospital Zurich features 114 rooftop patient rooms designed like wooden cottages with their own roofs. The project also includes a research and teaching facility.
Mixed-Use | Oct 7, 2024
New mixed-use tower by Studio Gang completes first phase of San Francisco waterfront redevelopment
Construction was recently completed on Verde, a new mixed-use tower along the San Francisco waterfront, marking the end of the first phase of the Mission Rock development. Verde is the fourth and final building of phase one of the 28-acre project that will be constructed in several phases guided by design principles developed by a design cohort led by Studio Gang.
Brick and Masonry | Oct 7, 2024
A journey through masonry reclad litigation
This blog post by Walter P Moore's Mallory Buckley, RRO, PE, BECxP + CxA+BE, and Bob Hancock, MBA, JD, of Munsch Hardt Kopf & Harr PC, explains the importance of documentation, correspondence between parties, and supporting the claims for a Plaintiff-party, while facilitating continuous use of the facility, on construction litigation projects.
University Buildings | Oct 4, 2024
Renovations are raising higher education campuses to modern standards
AEC higher ed Giants report working on a variety of building types, from performing arts centers and libraries to business schools. Hybrid learning is seemingly here to stay. And where possible, these projects address wellness and mental health concerns.
