Slow Payments Are Costing the Construction Industry $136B
72% of subcontractors would offer a discount in exchange for payment within 30 days.
Slow payments are predicted to cost the construction industry $136 billion this year, up 36% over 2020 levels.
The latest Construction Payments Report from Austin-based construction finance software firm Rabbet reveals that 72% of subcontractors would offer a discount in exchange for payment within 30 days, while 67% of subcontractors say they’d choose not to bid on a project due to a GC or owner’s reputation of slow payments. About 35% of all general contractors surveyed say work has been delayed or halted thanks to a delay in paying crew members over the last year.
Typically, costs associated with slow payments are passed on to real estate developers and financiers in the form of project delays and higher bids from contractors, Rabbet said.
The GCs surveyed say higher material costs are principally to blame for slow payments this year, followed by longer material lead times and lingering impacts of COVID-19.
“Unforeseen uncertainty in the supply chain requires contractors, developers, and lenders to take a collaborative approach toward addressing price and schedule risk in 2021,” said Will Mitchell, CEO of Rabbet. “The pandemic further illuminated existing process challenges and the need for transparency, automation, and centralization in construction payment processes has never been greater. It is imperative to our industry that all parties involved in the construction payments process choose to optimize their processes in order to reduce the staggering $136B cost to the industry.”
A lack of materials have been forecast to lead to cost increases and delays since the shortages began in earnest last year. A survey from the National Multifamily Housing Council earlier this spring revealed that builders are increasingly concerned about supply constraints and increasing costs, with 40% of respondents surveyed then citing price increases north of 20% for their most impacted materials.
Chief among those concerns were the sky-high price of lumber, which is “creating a serious impediment for apartment developers and construction firms,” NHMC vice president of research Caitlin Walter said.
Those prices began falling in September, hitting $454.40 on the spot market. However, experts predict that prices will remain high into the second half of next year.