[ad_1]
\n<\/p>\n
U.S. subcontractors are heading into the second half of 2023 facing a mixed bag of issues.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Inflation costs and labor availability add persistent pressure, and pandemic-induced supply chain issues haven\u2019t entirely resolved. But most subs had business revenue growth in 2022 and expect growth this year.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n That\u2019s what Billd, an Austin, Texas-based construction financial support firm, found in its third annual <\/span><\/span><\/span><\/span><\/span><\/span>National Subcontractor Market Report Survey<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> of nearly 900 subcontractors in January. Those working to keep the subcontractor part of the construction industry afloat while still fighting some tricky headwinds have different strategies for navigating the uncertain landscape.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Here are some of their top concerns:<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Labor continues to be an issue for subcontractors. Billd found that 49% of respondents said lack of availability of skilled, affordable construction labor will be the biggest risk to their business this year. Part of that is financial: Labor costs have gone up 15% since 2022, according to the report.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n But it\u2019s also demand. The $1.2 trillion Infrastructure Investment and Jobs Act means that contractors will need hundreds of thousands of workers to deliver those projects. At the same time, pandemic-related retirements have created a gaping talent hole.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cA lot of folks that were in their early 60s got out and they didn\u2019t come back,\u201d said Chuck Goodrich, president and CEO of Indianapolis, Indiana-based Gaylor Electric. \u201cWe\u2019re replacing those 30-year vets, 40-year vets, with 18- to 30-year-olds who have either entered the construction force or are just coming out of school.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n A determined focus on training and education, such as investment in programs that recruit young people, is helping, said Goodrich. That includes a change to negative perceptions of working in the construction trades and providing education and training opportunities directly to high school students to prepare them for careers in the field. (Goodrich is also a member of the Indiana House of Representatives,<\/span><\/span><\/span><\/span><\/span><\/span> <\/span><\/span><\/span><\/span><\/span><\/span>and works on initiatives in this direction<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a>.)<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n But rushing workers into these jobs can backfire, said Spencer Krebs, associate at Cleveland-based law firm Tucker Ellis LLP.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cWhen you don\u2019t have quality workers, you tend to hire folks who are less qualified and result in potential claims, or delays or defects. These issues have a trickle-down effect and really hurt their bottom line,\u201d he said of subcontractors.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n While many pandemic-related pressures have eased, inflation has not. Billd found that subcontractors paid an <\/span><\/span><\/span><\/span><\/span><\/span>extra $97 billion in materials<\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/span><\/a> (26% increase) and labor (15% increase) than expected. In addition, one third of subcontractors reported a decline in profits because bids were not rising fast enough to stay in line with input costs.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n This has especially become a problem for subcontractors that signed fixed price contracts, as diesel and fuel prices have skyrocketed, said Krebs. Some of his firm\u2019s clients aren\u2019t as worried about making a profit as worried about \u201cnot going into the red,\u201d he said, because prices have spiked.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n The good news is that supply chain chaos has leveled off, said Goodrich. Lead times are still long, but they\u2019re consistent. During the pandemic, for example, the lead time for a 200-amp switchboard might have started at 12 weeks and stretched to around 40 weeks or even 60 weeks. While the lead time still may be 40 weeks, at least it\u2019s sticking in one place.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cIt\u2019s still tremendously long, but at least now it can be built into schedules,\u201d he said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Subcontractors are still paying out of pocket before getting paid themselves, according to Billd: 87% of respondents reported doing so, up from 62% in 2022.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Goodrich said he sees shades of the 2008-2009 recession where it was \u201cnot so much that we weren\u2019t running our business, but that we stopped getting paid,\u201d he said. Payment terms went out as far as 90 days, but vendors expected to be paid in 30. Right now, subcontractors pay for labor and materials before getting paid themselves, with an average wait time of 74 days, the survey said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Working closely with general contractors and owners and having ongoing discussions about these pressures, has helped, as has working together to stick to a finish date and determine \u201cwhat we\u2019re going to do to get there.\u201d Such collaboration means \u201chaving a partnership instead of adversarial relationship,\u201d Goodrich said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Despite these continuing disruptions, not all is lost. Despite 57% of respondents reporting a decrease in profitability, 61% still had business revenue growth in 2022, and 72% of subcontractors plan for growth in 2023.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n Goodrich admits that he\u2019s an \u201cunapologetic, passionate optimist,\u201d and that he sees continuing better days ahead for subcontractors.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n \u201cInflation has come down. We\u2019re working tremendously hard on students coming into our business, so I think that will improve,\u201d he said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n<\/p><\/div>\nSkilled worker shortage<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n
Inflation and materials issues<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n
Cash flow disruptions<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\n