How Labor Shortages & Market Volatility are Impacting Subcontractors

Billd has released the second annual National Subcontractor Market Report. Last year’s report honed in on the financial reality of subcontractors. Despite having just emerged from a pandemic, last year’s market conditions were perceptibly calmer.

This year told a different story. A volatile market threw construction businesses for a loop. Labor shortages became a reality in the industry.

Conducted in February, the report investigates how the market changed, the impact of these changes on subcontractors and the attitude they’ve adopted in dealing with them.

767 construction professionals in a variety of trades took the survey from which Billd built this report. Respondents completed the survey in February.

57% of contractors saw a decrease in profitability in 2021, and the survey probed into the macroeconomic conditions that contributed to that outcome.

Although volatile material prices aren’t an entirely new phenomenon, they stood out in 2021 as a starker challenge to subcontractors.

• 75% of contractors say the volatility and increase in material prices negatively impacted their business in 2021.
• 88% expect the volatility and increase to impact their business in 2022.
• 79% of subcontractors say material availability and long lead times negatively impacted their business in 2021.
• 87% expect the availability of materials and increase in lead times to impact their business in 2022.

Labor remains the biggest concern for commercial subcontractors, with 40% of subcontractors responding that the availability of skilled workers was the single greatest challenge they were dealing with in the course of doing business.

• 40% availability of skilled construction workers
• 30% material prices and volatility
• 16% material lead time delays
• 10% competitive bidding environment
• 4% access to flexible working capital

The survey was constructed to glean subcontractors’ disposition toward business progression and how it may grow or recede in various climates. Declines were observed this year, but weren’t entirely surprising given the more volatile conditions of the market.

• 71% of contractors plan to grow their businesses in 2022, compared to 74% in 2021.
• 50% of contractors will seek larger projects in 2022, compared to 62% in 2021.

In an industry where subcontractors are often paid last, have to wait an average of 83 days for payment, and front the cost of materials and labor — using cash to fund growth and take on larger projects means they are putting extreme pressure on their cash reserves. Or worse, depleting them. Subcontractors reported they would be willing to accept a pay cut if it meant getting paid faster.

Supplier terms were the overwhelming favorite for purchasing materials last year and they held onto their place. However, there is a hidden cost associated with supplier terms.

Subcontractors appeared to be more satisfied with their suppliers’ terms last year, and there was a slight dip in satisfaction this year.

• 56% do not believe their terms are sufficient compared with 49% last year.
• 60% believe their suppliers are flexible with terms and support their business compared with 65% last year.
• 31% of contractors reported that their supplier terms were adjusted in 2021 due to increasing prices or longer lead times, squarely reflecting the impact of market volatility.

New tools are emerging to serve the industry in many different areas. The report breaks down the implications of how frequently each software type is being leveraged.

To view the full report, click here.