Delayed payments add $273bn to US construction bids says study

A new report from construction software specialist Rabbet, based on a survey of construction companies across the USA, finds that both general contractors and subcontractors are increasing their bids by a median amount of between 6% and 10% to compensate for late payments.

With the US construction industry estimated to reach $1.97 trillion in 2023, Rabbet extrapolated that for general contractors this equated overall to an additional $98bn, while subcontractors, between them, are adding $175bn.

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The report, published this week, found that the proportion of subcontractors surveyed using credit cards to float payments in 2023 increased to 57%, up from 51% in 2022 and just 22% in 2021. The proportion of subcontractors tapping into lines of credit grew from 37% in 2022 to 46% in 2023. And the proportion using business savings for their float increased from 46% in 2022 to 70% in 2023.

General contractors also said that they were relying more on savings to act as a float for everyday expenses. The survey showed that the proportion of general contractors relying on business savings to pay for everyday expenses rose from 40% in 2022 to 67% in 2023. However, the proportion resorting to lines of credit or credit cards fell as higher interest rates made financing costs more expensive.

Each year Rabbet conducts an online survey of around 100 general and subcontractors to get a snapshot of how quickly they are paid for the work they have done and how they are financing the shortfall.

In 2023, it found that lengthening payment times and rising finance costs meant that the estimated total cost of slow payments stood at 14% of total construction costs in 2023, an increase from the approximate 12% cost in 2022.

“The ‘survive til 25’ sentiment making the rounds in the industry is indicative of the concerns in the market,” said Rabbet’s CEO and Co-Founder, Will Mitchell, “but based on the trends captured in the report, the industry is adapting.”

“As always, there are growth opportunities for the developers and owners who best position themselves to evolve during changing conditions. This means shifting product focus, modernizing processes, and embracing technology to not only survive now, but be prepared to thrive in 2025.”

The study comes as Governments in several countries around the world are coming under pressure to intervene to help crisis-hit construction businesses as builders in countries from Germany to Australia have been stricken by a mix of rising interest rates, more expensive construction materials, a dire shortage of skilled workers and slowing demand for new developments.