Rebuilding America: The Challenges Contractors Face Under the Infrastructure Plan

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Last year, Washington lawmakers passed a bipartisan $1.2 trillion infrastructure plan, funneling billions directly into repairing crumbling highways, bolstering shipping ports, upgrading airports and other vital projects for the next decade. This plan represents the largest comprehensive infrastructure investment in U.S. history, and potentially the most impactful since the New Deal ushered in rural electrification, municipal water systems, and the Hoover Dam, or the creation of the interstate highway system in the late 1950s.

The new projects are now being launched across the country which will boost the construction industry. However, these new opportunities exacerbate the two main challenges contractors face on a daily basis: how to afford rising material costs and how to recruit and retain skilled workers.

Large public infrastructure projects are fantastic for job creation, but they also dramatically increase demand for materials, which is already under strain. Since 2019, the prices of materials in the construction industry have exploded. In 2021 alone, flat steel prices increased by 131%, lumber prices by 32% and copper by just over 50%

These price spikes happened for many reasonsfrom increased demand, to environmental disasters such as wildfires, to rising fuel prices. According to the US Chamber of Commerce, 95% of entrepreneurs expect to experience at least one product shortage. How can subcontractors bid on their next project if the price of materials remains so volatile and prices continue to rise?

Concrete contractors have been particularly hard hit by rising prices. During the pandemic, concrete prices have increased significantly. In fact, ready-mix concrete prices have gone from $128 in January 2020 to $142 today (for the southern region of the United States), an increase of 11%. Demand for concrete rarely drops because, unlike other construction materials, concrete is essential to every construction projectresidential, commercial or industrial investment and infrastructure will only further increase demand.

As ever-rising material prices push contractors to the brink of financial abyss, an equally critical challenge is the battle to find skilled workers. A recent US Chamber of Commerce study found that 91% of entrepreneurs had moderate to high difficulty finding skilled workers. Of that 91%, a staggering 62% said their difficulty was “high”, up 20 points from 2020. To meet booming demand, the construction industry needs to add 2, 2 million additional workers by 2025.

Other industries deal with labor shortages by simply raising wages, an option not available to contractors. Construction workers already earn 46% more than the average US hourly wage of $11.26. By increasing wages, adding new incentives, as well as exorbitant material prices, a contractor will have to raise the price of their project and pass that difference on to consumers. Even then, it would do little to significantly increase the influx of young, skilled construction workers. Add to that potential wage strikes in high-growth areas like Seattle, it’s no wonder concrete contractors feel under siege.

These recent developments highlight the central problem that the payment cycle in the construction industry has been broken for decades. Subcontractors are at the end of the payment road, often waiting more than 90 days to be paid for work completed, limiting their potential to bid on another project. Relying on cash on hand is far too unpredictable to comfortably pay for labor or materials up front, let alone reliably fund the large expenses that come with scaling a business. of construction.

Possible solutions for success and growth

One way out of the cycle is for contractors to approach traditional banks, which are often reluctant to offer financing to contractor companies due to rising and falling cash flows, let alone companies younger with no proven financial history. Another option is to find some form of alternative lender, but this choice often ends up being prohibitively expensive and not suitable for construction companies. To not only survive but thrive, contractors need more ways to secure their capital.

Fortunately, new financing solutions are helping contractors’ commercial construction projects come to life. These new financing options are ideal because they’re designed specifically for contractors, allowing them to purchase project materials with 120-day terms that align with payment cycles.

An effective materials financing solution pays suppliers quickly and up-front, providing subcontractors with same-day purchase financing, ensuring the best prices. Flexible financing options ensure materials arrive, suppliers get paid, and subcontractors have more time to pay. They help to build and strengthen a healthy relationship between subcontractors and suppliers. Materials financing solutions also avoid costly price gouging and help subcontractors qualify for discounts.

Contractors face similar challenges when dealing with labor costs. When they don’t get paid on timewhich can happen frequentlycontractors have to pay for labor out of pocket, putting undue stress on their business and strangling cash flow. Prepayment options provide same-day financing to cover labor costs and provide a stable and secure source of income, eliminating the contractor’s responsibility to issue their own capital to finance projects and pay its workforce. Designed specifically for contractors to ensure prompt payment, and with reimbursement terms of up to 120 days, labor advance solutions can help contractors manage expenses more effectively all along the project.

Contractors hit by skyrocketing material financing costs and pernicious labor shortages in construction need more help. With demand still on the rise and few options for rapidly increasing the number of workers, contractors need safe and reliable options to help bridge the gap between their outgoing payments and their incoming cash flow. Contractors and contractors will need to adapt and take advantage of new tools if they are to succeed and grow.

About the Author

Christopher Doyle, co-founder and CEO of Billd, is an entrepreneur and business leader with extensive experience in the construction industry and a record of launching successful startups.

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