By Chris Doyle, President & CEO of Billd
The sharp rise in labor and material costs has rocked the North American construction industry. While it’s been a heavy topic of discussion, there hasn’t been enough hard data in one place to get a clear snapshot of how it is impacting subcontractors.
In April, Billd released our second annual National Subcontractor Market Report, which details the trends and challenges construction subcontractors face each day. While the report compiles U.S. data, the Canadian construction industry is weathering a similar perfect storm of high costs, scarce materials, and too few skilled workers.
The Cost to Build in 2022
These twin challenges – high costs, scarce labor – hammered subcontractors. The numbers are stark. In 2021, 75% of surveyed contractors said that volatility and increased material prices had a negative impact on their business. The outlook for 2022 is stark as well, with 88% saying they expect material prices and volatility to significantly impact their business.
Supply chain issues due to the COVID-19 pandemic played a major role in price spikes and scarcity, and natural events such as wildfires affected lumber production and increased difficulties. Last year, four out of five subcontractors reported having trouble procuring necessary materials for their projects, and nearly 90% of surveyed subcontractors are expecting to have difficulties procuring materials in 2022. Until the supply chains are corrected, this is a problem that will continue to plague the industry.
Financial Growth Challenges
With supply and labor price challenges, how to pay for necessary materials is a huge concern for subcontractors. Overall, 89% chose to use supplier term lending to pay for the materials. This method is largely preferred over the use of credit cards, cash, or bank loans.
However, they do come with a drawback. A great majority of supplier terms are too short. The universal standard is 30 days, but there are shorter terms. Over half of contractors and subs agree that these terms’ timing is not sufficient. How could they agree that they are long enough? Only 4% of supplier term lenders have terms that are over 60 days, while the average time for a contractor to be paid is closer to 90 days or more.
Contractors and subcontractors are historically paid far too late after they have completed their projects. In Billd’s survey, 80% of subcontractors wish that they would be paid at a faster rate for their completed work, and 86% stated that if payment were guaranteed within three days of an approved pay application, they would consider a 1 to 5% discount.
The Search for Skilled Talent
Starting in 2021, millions of skilled workers began to resign from their positions in search of better opportunities, thus beginning the Great Resignation, across all industries. The construction economy was not spared from this wave of resignations, compounded with an aging workforce that is either retiring or approaching retirement, the construction industry is pressed for skilled workers. In fact, the availability of skilled labor is the number one risk to businesses that contractors and subcontractors are facing in 2022 according to the industry report.
Workers across all industries are bringing more to the table than just their talent. Their expectations for their next employer are now more than just a paycheck, they are looking for a work-life balance, an opportunity to grow in their careers, and benefits such as health and retirement. The pandemic gave rise to a new age in the use of technology, particularly in remote work. It will be up to employers to meet candidates’ expectations and secure their talent.
New technologies and remote working options are proving to be big attractions. Employers who are focused on prioritizing employee retention need to provide the most state-of-the-art technology available, allowing the worker to be as efficient as possible, wherever they are working. Efficient working conditions = higher profit margins.
Employers who are requiring their workers to come in when it’s not necessary for the job itself need to ask themselves why they’re insisting on it. Is it control? Trust? We have found that our workers not only work more from home, but they’re enjoying their jobs more. Controlling where they’re working from, when it’s not necessary for the job, does not mode well with the modern worker.
The Bottom Line
In 2021, 74% of contractors planned to grow their business. This year saw a slight dip to 71% but, overall, contractors and subcontractors still have faith that they can continue to build for the future. The flashing red light from our report is the major drop in large projects subs are willing to seek out. In 2021, 62% of contractors were seeking larger projects. Now, this stat has dropped by 12% and is at the 50% mark.
The decline in project interest size can squarely be placed on:
- A lack of skilled labor.
- Inflation across the construction industry.
Rising material costs and price volatility are key issues for subcontractors. Billd’s 2022 National Subcontractor Market Report confirmed a lot of the known challenges and opportunities subcontractors experience across the industry. Subcontractors are resilient and optimistic but need more tools to navigate this increasingly challenging environment.
Unfortunately, the construction payment cycle is broken, and subs have been left to finance a $1.4 trillion industry with very few cash flow solutions offered to them. The construction industry must do more to ensure subcontractors have every opportunity to thrive and succeed.
Christopher Doyle is an entrepreneur and business leader with extensive construction industry experience and a record of launching successful startups. He is the co-founder and CEO of Billd, a disruptive payment solution for the construction industry that helps subcontractors grow their businesses with less hassle and risk. Recognizing the cash flow hurdles subcontractors face when purchasing materials, Doyle launched Billd to make traditional Wall Street working capital accessible to business owners in the construction industry.
Billd provides a payment solution that enables commercial construction contractors to free up cash for material purchases while enjoying the flexibility of 120-day payment terms. You get financing for commercial materials upfront with the freedom to pay it back at your own pace. Learn more about how Billd can help eliminate your company’s cash-flow problems so you can win more bids and grow your business.