The construction industry continues to show strength but specialty contractors face a number of challenges. Rising costs due to inflation, managing materials with an unsteady supply chain, and labor shortages make it difficult for specialty contractors to maximize their profits.
"Billd's National Subcontractor Market Report: A Look at the Reality of Running a Commercial Subcontracting Business in 2023" uncovered some interesting statistics that has many in the industry quickly seeking solutions to these challenges. Amongst the report, we see that:
๐ Specialty contractors paid $๐ต๐ณ ๐ฏ๐ถ๐น๐น๐ถ๐ผ๐ป ๐ฑ๐ผ๐น๐น๐ฎ๐ฟ๐ ๐บ๐ผ๐ฟ๐ฒ ๐ถ๐ป ๐บ๐ฎ๐๐ฒ๐ฟ๐ถ๐ฎ๐น๐ and labor than expected this year
๐ ๐ฑ๐ณ% of specialty contractors ๐ฟ๐ฒ๐ฝ๐ผ๐ฟ๐๐ฒ๐ฑ ๐ฎ ๐ฑ๐ฒ๐ฐ๐ฟ๐ฒ๐ฎ๐๐ฒ ๐ถ๐ป ๐ฝ๐ฟ๐ผ๐ณ๐ถ๐๐ฎ๐ฏ๐ถ๐น๐ถ๐๐
๐ ๐ฐ๐ต% of specialty contractors believe skilled labor shortages pose a significant risk to their businesses this year
Rising Costs
One of the biggest challenges facing specialty contractors is the rising cost of materials and labor. According to the Billd report, specialty contractors paid an extra $97 billion for labor and materials. This was due in part to the COVID-19 pandemic, which disrupted supply chains and drove up prices. Billd reports that labor spending increased by 15% and material spending increased by 26%. Contractors traditionally would see a 4% scheduled increase in labor and roughly 7% for material. These numbers represent a 4x increase in cost from a normal year.
The rubber meets the road hard when the competitive landscape prohibits contractors from increasing their bid prices proportional to these increases in costs. The result is a direct impact to the bottom line the day the bid leaves the building. Project awards should be a day celebrated in the businesses of specialty contractors but more and more they are โuh ohโ moments that cause teams to scramble to check that they will be able to source the material in time and build these projects on time and under budget. A potential 4x reduction in profits should cause any business to take a hard look at how they can increase efficiency and control of their process and really leverage the relationships theyโve built over the years to try and control these costs.
Managing Materials
Another challenge facing specialty contractors is managing materials due to the uncertain supply chain and competition for materials. Everyone wants what is in short supply. We heard for the first time that material had become the bigger risk to their business than labor. Owners reported that they could have a conversation with their labor partners but vendors' hands were tied for meeting onsite dates. With no contractual protections in place, the risk for not meeting scheduled deliveries fell squarely on the specialty contractor.
Specialty contractors thrive in their ability to handle adversity. Problem solving, dynamic team troubleshooting and risk assessment happen daily in every part of the business. Whatโs different today? There is a changing of the tides happening right before our eyes. Technology solutions are now available to aid in this malleable approach to business problem solving; digital inventory management, request for quotes, field requisitions, creative financing, streamlined communication, and collaboration and invoice management are all digitized to increase visibility to critical material functions of any self performing company.
Labor Shortages
Almost half of specialty contractors believe that labor shortages pose a risk to their business. Turner Construction, the largest GC in North America, released their 2022 annual construction cost report and highlighted how contractors are reacting to these increased costs by being more and more selective. This means slowed growth for specialty contractors who are in high demand.
Itโs no wonder that weโre hearing โwork smarter, not harderโ these days. There is no short term solution for the labor shortage. Not enough people are not entering the trades fast enough; the only option is to do more with what you have. Tools such as Procore and StructShare can get field folks back to building faster, office staff to organize requests and manage suppliers more efficiently, and overall cross-team communication improvements that benefit the entire process from requesting material and getting it delivered onsite to facilitating streamline payments and all-inclusive billings.
Conclusion
Specialty contractors are the backbone of the construction industry but bear the brunt of the risk. You get projects built on time and on budget. By overcoming the challenges the trades people face, the construction industry can ensure the success of specialty contractors who will continue to play a key role in the quality and growth of our built world.
Referencing: https://billd.com/2023-national-construction-financing-market-report-for-subcontractors/
