Labor and materials are costing subcontractors more then expected—lots more. Nonetheless, the majority of subcontractors experienced revenue growth in 2022 and are anticipating growth this year too. Read on for insights from the National Subcontractor Market Report.
Optimistic Despite Expense Bumps
Clearly, the subcontracting business is not for the faint of heart, given the pressures of “navigating uncertainty in their payment cycles and subpar access to capital.” Nonetheless, even with the challenges of labor and materials, subcontractors, by and large somehow manage to remain optimistic as they steer forward. Reporting on the survey from the National Subcontractors, Zachary Phillips of Construction Dive notes: “More than half of respondents said their business grew by 1% to 20% last year, and 58% are interested in pursuing larger projects this year.” Market Research from Austin based Billd underscores the challenges labor and materials have created for subcontractors:
U.S. subcontractors paid $97 billion more for materials and labor than expected in 2022 as profitability dropped, according to the third National Subcontractor Market Report survey by Billd, an Austin, Texas-based construction financial support firm. Although 61% of businesses surveyed saw revenue growth, 57% saw a drop in profitability…. An overwhelming majority of subcontractors had to pay for labor and materials before getting paid themselves, with an average wait time of 74 days. Despite a quarter of them struggling with obstacles to secure financing, 72% of respondents are planning for growth this year, even in the face of unpredictable input costs…. Labor costs jumped 15% on average, respondents said, and 87% had to pay out of pocket for labor before the sub got paid….About half of respondents said the lack of skilled construction labor is the biggest risk to their business in 2023.
Competition for labor is unlikely to go away anytime soon: experts point out that infrastructure, green energy and semiconductor manufacturing (CHIPS) projects are going to keep contractors hopping. In addition to billions of dollars from the Infrastructure Investment and Jobs Act (IIJA), builds, such as those underway to modernize airports across the country, are benefiting from state and county commitments. With so many projects in need of workers, Construction Dive reports that the Department of Labor is advancing efforts to bring more under represented groups into the field via special training programs. Meanwhile large contractors are especially eager for subcontractors who bring electrical, plumbing and mechanical expertise to semiconductor manufacturing builds. With so much going on, despite the workforce challenges, many contractors are capitalizing on opportunities to win more work—and The Partnership Account® for Contractors can get you growing too. Once qualified, The Partnership Account® gives builders a surety line of credit—in writing—and a private digital dashboard, providing daily snapshots of single and aggregate limits and bond capacity. Go ahead: update work on hand, increase the aggregate and move forward faster.
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Higher Bids?
Profitability declines were not new to subcontractors over the past year: “2022 was the second straight year that subcontractors reported a 57% decrease in profitability. A third of respondents attributed the drop to not increasing the price of bids at the same rate that costs of material or labor rose.” Although most subcontractors remain optimistic and even eager to pursue bigger projects they are realistic too: “four in five respondents expected high or volatile business to impact their business in 2023.”
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Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed.