In 2022, affected by inflation, supply chain interruptions and labor shortages, U.S. subcontractors blew past their budgets—to the tune of $97 billion. Rising labor and materials costs outweighed industry growth, resulting in a decrease in profitability for 57% of the subs surveyed (despite revenue growth) by Billd, a Texas-based construction financial support firm, which recently published its second-annual National Subcontractor Market Report.
- Additional factors contributing to the bleak budgetary situation included:
- Unpredictable pricing of materials
- Inflexible or shortened terms from suppliers
Incoming payments for work lagged behind expenditures for materials and labor (delays of 74-83 days on average, with 87% of subcontractors paying for labor and 73% paying for materials before receiving payment from the general contractor or property owner)
According to the report, this “represents 97 billion instances of subcontractors financing the entire industry, all while navigating uncertainty in their payment cycles and subpar access to capital.”
Last year was the second consecutive year in which subcontractors experienced a decrease in profitability. One-third of those surveyed blamed the inability to increase their bids at the same rate that materials and labor costs increased. Labor costs rose an average of 15%. Bid competition added another constraint in increasing the amount of a winning bid.
Labor costs were concurrent with labor shortages. According to the report, 40% of subs considered the lack of skilled workers their single greatest challenge, and many of them predicted that labor shortages would become even worse in 2023.
Labor wasn’t the only issue. Almost 80% of subcontractors thought material availability and long lead times hurt their business.
Despite the trials and tribulations of doing business in the construction industry, more than half of the subcontractors responding to the survey reported their businesses grew by 1%-20% in 2021, and 71% of them planned for growth in 2022, with most of them using cash on hand or a line of credit to fund it.
Financing construction projects continues to be an issue for those doing the work. Because of the delay in payment to contractors, cash on hand may not be able to stretch far enough to cover new projects. As many as 78% of survey respondents had to wait more than 30 days for payment after submitting an invoice to their general contractor. Thus, they tend to rely on the terms offered by their suppliers in order to purchase materials.
Supplier terms were favored over credit cards and cash by 69% of subcontractors, despite decreasing satisfaction with the flexibility of those terms. Thus, expectations of subcontractors considering subcontractor-specific financing options are increasing.
Billd’s conclusion is that subcontractors need advocates and partners to help them weather a volatile market where prices can change unpredictably.
About The Author
Lori Lovely is an award-winning writer and editor in central Indiana. She writes on technical topics, heavy equipment, automotive, motorsports, energy, water and wastewater, animals, real estate, home improvement, gardening and more. Reach her at: [email protected]