Inflation and increasing labor and material costs impacted subcontractors’ profitability in 2022.
“The financial burden of material and labor has always been difficult to quantify, the full extent a bit hazy. Knowing that subcontractors spent an extra $97 billion almost feels like putting a face to a name,” the report reads. “For some, it’s the missing cushion in their profit margins. It represents 97 billion instances of subcontractors financing the entire industry, all while navigating uncertainty in their payment cycles and subpar access to capital.”
Even with high inflation rates in 2022, labor and material spending accounted for a larger bump in expenses.
The decline in profitability was not unique to last year, the report said. 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.
Labor costs jumped 15% on average, respondents said, and 87% had to pay out of pocket for labor before the sub got paid. Subcontractors have increasingly reported having to do so in each of Billd’s annual surveys.
That problem doesn’t seem to be getting any easier.
About half of respondents said the lack of skilled construction labor is the biggest risk to their business in 2023. Meanwhile, four in five respondents expected high or volatile business to impact their business in 2023, and two-thirds said those prices had an explicitly negative impact in 2022.
Even still, there’s a beacon of optimism. 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.
