Rising material and labour costs add US$97 billion to expenses of US subcontractors
By Andy Brown and Jenny Lescohier21 April 2023
Subcontractors in the US were hit with additional costs of US$97 billion in 2022 due to rising costs of materials and labour, according to a new study from Billd of nearly 900 commercial construction professionals across the US.
Just over 80% of those surveyed reported that rising material costs and price volatility had a negative effect on their businesses in 2022; almost all expect that trend to continue.
Respondents revealed that, on average, material costs jumped 26%. Similarly, competition for workers due to the longstanding labour shortage saw a 15% average increase in labour cost. Together, those increases amounted to US$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.”
While conditions are challenging, the survey revealed that 61% of subcontractors grew revenues in 2022 and 72% said they expected revenues to grow in 2023.
“Despite these compounding challenges, subcontractors remain optimistic about their businesses,” added Doyle.