By Christopher Doyle
After decades of gridlock and inattention, there appears to be a breakthrough in infrastructure investment. Passage of the plan will provide the most significant investment in highways, ports, and other critical projects in decades and opportunities for growth. But silver linings often conceal dark clouds. During an unprecedented labor crunch and supply chain challenges, how will contractors and subcontractors find resources to complete projects in the pipeline and strengthen their position to succeed?
PLAN IN THE WORKS
In July, the U.S. Senate passed the $1.2 trillion bipartisan infrastructure plan, and an even larger $3.5 trillion plan remains under consideration. The Infrastructure Investment and Jobs Act (IIJA) provides $550 billion in spending on new road, bridge, water, energy, and broadband projects.
The package includes:
- $110 billion in new spending for highways, roads, and bridges
- $39.1 billion for transit programs
- $78 billion reauthorization of federal freight and passenger rail programs, $66 billion in new spending on Northeast Corridor, $36 billion for intercity passenger rail projects, $16 billion for Amtrak, and more
- $17.3 billion for ports and waterways projects
- $25 billion for airport infrastructure
While the proposed investment into essential projects is good for the construction industry, it will exacerbate current difficulties and create new challenges for contractors and subcontractors. The IIJA will force housing, commercial, and infrastructure projects to battle for high demand labor and materials.
When COVID-19 struck, employment in the construction industry plunged 15%—1.1 million jobs—in 2 months. Fortunately, demand for housing exploded, leading to record new home starts and buoyed the entire industry over the last year.
In contrast, commercial construction experienced little overall growth in 2020 and 2021. According to the Association of General Contractors (AGC), nearly 4 in 5 contractors said one or more projects had been canceled or postponed since the beginning of the pandemic. At the same time, only one-fourth reported winning new work or add-ons to existing projects. Unlike homebuilders, commercial contractors are struggling to recover, and the pandemic has exacerbated longtime, systemic challenges.
Perhaps the greatest challenge facing commercial construction is a dramatic shortage of skilled workers. The AGC believes an additional 430,000 workers this year and 1 million more over the next 2 years are needed to keep up with demand. According to the U.S. Chamber of Commerce, 88% of contractors find it difficult to attract skilled construction workers. This severe shortage leads to higher bids on projects, greater schedule delays, or contractors turning down projects altogether.
The second major challenge is a critical shortage of building materials. The pandemic devastated supply chains across the globe, and the torrid U.S. homebuilding boom is swallowing up essential building materials. Nearly half of commercial construction contractors say lack of available materials is a top concern, and 71% say they face at least one significant material shortage. These supply chain issues are increasing project delays and raising prices.
Simply put, the construction industry faces unique hurdles without simple solutions and dropping $1 trillion into the marketplace will only increase competition for limited resources. How can contractors and subcontractors adapt to meet these challenges? Predictable, reliable finance options is the key.
It is commonplace for contractors and subcontractors to lack financing to bid on projects. The truth is construction supply chain finance has been broken for decades as traditional lending services typically leave contractors and subcontractors behind. With so many commercial projects already waiting at the starting gate, the booming home building industry—and now potentially hundreds of major infrastructure projects joining the pipeline—contractors and subcontractors face even greater competition for limited, in-demand resources and workers.
Every construction subcontractor faces the same dilemma: paying for materials, labor, and general and administrative expenses each month. Project payment is contingent upon multiple factors, with the potential for considerable delays in the payment chain. Unfortunately, subcontractors and suppliers are typically the last to get paid, often waiting 60-90 days for completed work. Cash flow alone is far too unpredictable to pay on time consistently and comfortably for labor or materials, let alone reliably finance the sizable expenses that come with scaling a business.
SUBS LAST ON LIST
Today, subcontractors sit at the bottom of the payment stream. More established subcontractors have various options at their disposal, but young businesses have a tough time getting the financing needed to succeed. For any up-and-coming construction entrepreneur, the question is: how do you access the construction financing options available to the major players and utilize them to scale your business?
Unfortunately, the lack of reliable funds increases subcontractors’ risk of losing a project because poor cash flow can delay on-time payment to suppliers, put critically needed materials at risk, create delays and cost overruns. When a GC replaces a subcontractor, they face expensive rework, change orders, and delays. Reliable, consistent financing ensures subcontractors deliver successful results, every time, helping the GCs avoid extra work, stress, and potential delays.
Material financing ensures immediate payment to your supplier, essentially eliminating any credit risk they otherwise would have taken on. In addition, with cash payments come cash discounts—making material financing one of the smartest ways for contractors to get a better deal on their project materials.
In this current market, when the supply chain and prices are unpredictable, finding workers is more complex than ever, and opportunity and competition are set to skyrocket. Contractors and subcontractors will need to adjust and take advantage of new tools to succeed and grow.
About the Author:
Christopher Doyle is an entrepreneur and business leader with extensive construction industry experience and a record of launching successful startups. He is the co-founder and CEO of Billd, a disruptive payment solution for the construction industry that helps contractors and suppliers grow their businesses with less hassle and risk. Recognizing the cash flow hurdles that contractors face when purchasing materials, Doyle launched Billd to make traditional Wall Street working capital accessible to business owners in the construction industry. For more, visit billd.com.
Modern Contractor Solutions, October 2021
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