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
Multifamily Housing | Dec 7, 2022
Canada’s largest net-zero carbon residential community to include affordable units
The newly unveiled design for Canada’s largest net-zero carbon residential community includes two towers that will create a new destination within Ottawa and form a striking gateway into LeBreton Flats. The development will be transit-oriented, mixed-income, mixed-use, and include unprecedented sustainability targets. Dream LeBreton is a partnership between real estate companies Dream Asset Management, Dream Impact, and local non-profit MultiFaith Housing Initiative.
Student Housing | Dec 7, 2022
Cornell University builds massive student housing complex to accommodate planned enrollment growth
In Ithaca, N.Y., Cornell University has completed its North Campus Residential Expansion (NCRE) project. Designed by ikon.5 architects, the 776,000-sf project provides 1,200 beds for first-year students and 800 beds for sophomore students. The NCRE project aimed to accommodate the university’s planned growth in student enrollment while meeting its green infrastructure standards. Cornell University plans to achieve carbon neutrality by 2035.
Office Buildings | Dec 6, 2022
‘Chicago’s healthiest office tower’ achieves LEED Gold, WELL Platinum, and WiredScore Platinum
Goettsch Partners (GP) recently completed 320 South Canal, billed as “Chicago’s healthiest office tower,” according to the architecture firm. Located across the street from Chicago Union Station and close to major expressways, the 51-story tower totals 1,740,000 sf. It includes a conference center, fitness center, restaurant, to-go market, branch bank, and a cocktail lounge in an adjacent structure, as well as parking for 324 cars/electric vehicles and 114 bicycles.
Geothermal Technology | Dec 6, 2022
Google spinoff uses pay-as-you-go business model to spur growth in geothermal systems
Dandelion Energy is turning to a pay-as-you-go plan similar to rooftop solar panel leasing to help property owners afford geothermal heat pump systems.
Contractors | Dec 6, 2022
Slow payments cost the construction industry $208 billion in 2022
The cost of floating payments for wages and invoices represents $208 billion in excess cost to the construction industry, a 53% increase from 2021, according to a survey by Rabbet, a provider of construction finance software.
University Buildings | Dec 5, 2022
Florida Polytechnic University unveils its Applied Research Center, furthering its mission to provide STEM education
In Lakeland, Fla., located between Orlando and Tampa, Florida Polytechnic University unveiled its new Applied Research Center (ARC). Designed by HOK and built by Skanska, the 90,000-sf academic building houses research and teaching laboratories, student design spaces, conference rooms, and faculty offices—furthering the school’s science, technology, engineering, and mathematics (STEM) mission.
Giants 400 | Dec 1, 2022
Top 100 Office Building Core+Shell Contractors and CM Firms for 2022
Turner Construction, AECOM, Clayco, and Gilbane top the ranking of the nation's largest office building core+shell contractors and construction management (CM) firms for 2022, as reported in Building Design+Construction's 2022 Giants 400 Report.
Mass Timber | Dec 1, 2022
Cross laminated timber market forecast to more than triple by end of decade
Cross laminated timber (CLT) is gaining acceptance as an eco-friendly building material, a trend that will propel its growth through the end of the 2020s. The CLT market is projected to more than triple from $1.11 billion in 2021 to $3.72 billion by 2030, according to a report from Polaris Market Research.
Giants 400 | Dec 1, 2022
Top 40 Parking Structure Contractors + CM Firms for 2022
PCL Construction, Balfour Beatty, McCarthy Holdings, and Level 10 Construction top the ranking of the nation's largest parking structure contractors and construction management (CM) firms for 2022, as reported in Building Design+Construction's 2022 Giants 400 Report.
Contractors | Nov 30, 2022
Construction industry’s death rate hasn’t improved in 10 years
Fatal accidents in the construction industry have not improved over the past decade, “raising important questions about the effectiveness of OSHA and what it would take to save more lives,” according to an analysis by Construction Dive.
