A report on the construction industry by Rabbet, a provider of construction financial software, found that late payments have cost the industry $208 billion in 2022, which is a 53% increase from 2021. The company says that while the increase appears drastic, it reflects the current economic climate.

Rabbet also surveyed 137 general contractors and subcontracts across the nation to find out how they managed project risks, working capital and bidding decisions in the face of slow payments during the past year.

The survey found that 49% of subcontractors waited 30 days or more for payments to come through. Additionally, 62% of general contractors reported financial costs as a result of floating payments. These payment issues can make their way to the developers and financiers of a project, who can eventually suffer from project delays and higher bids on jobs.

“As these realities set in, the implications for contractors grow tremendously,” says Will Mitchell, CEO of Rabbet. “The risk of contractors going out of business skyrockets in environments like this and furthers the necessity for a better payment process in general. Contractors are clearly feeling this strain considering there was an 8.5-times increase in general contractors using retirement savings to float payments for their business.”

Some contractors claimed in the survey that they are boosting their bids anywhere from 5-10% to help absorb associated costs. They also say that they are becoming more finicky when selecting bids because of increasing labor and supply prices.

“When general contractors and subcontractors are in a situation where they can’t sustain their businesses because of disjointed payment processes, the risk to both lenders and developers grows immensely,” says Mitchell. “Developers can’t control inflation and materials costs. The greatest opportunity to reduce project costs and attract and retain the best contractors is by implementing systems to get people paid quickly.”

The report’s findings include:

  • 37% of all respondents report that work has been delayed or stopped due to a delay in payments to crew members in the last 12 months.
  • 44 hours per month general contractors spend managing payments to subs and vendors.
  • 90% of general contractors surveyed see the value in paying their subcontractors faster.
  • 62% of general contractors have incurred billing charges, financing charges, or other costs when floating payments to others in the last 12 months.