Report: The $208B Cost of Slow Payments to the Construction Industry, a 53% Jump From Last Year

AUSTIN, Texas, November 08, 2022--(BUSINESS WIRE)--Rabbet, the leading provider of construction finance software, today released the 2022 Construction Payments Report, with insights into the rapidly accelerating costs associated with slow payments in the construction industry.

Key findings include:

  • 37 percent of all respondents report that work has been delayed or stopped due to a delay in payments to crew members

  • 62 percent of general contractors incurred billing charges, financing charges, or other costs when floating payments to others

  • 8.5x increase in general contractors using retirement savings to float payments for their business

The cost of floating payments for wages and invoices represents $208 billion in excess cost to the industry, a 53 percent increase from 2021. Findings indicate those costs are passed on to real estate developers and financiers in the form of project delays, added risk, and higher bids from contractors.

To compile the data, Rabbet distributed a survey in September of 2022 to general contractors and subcontractors. This year’s report captures how they managed working capital, bidding decisions, and project risks in the face of slow payments during the last 12 months.

Inflation and rising interest rates have direct impacts on the construction industry. Though a 53% increase in the cost of slow payments in one year is major, it’s on par when considering the current economic environment. Some contractors claimed they are boosting their bids anywhere from 5-10% to help absorb associated costs and are "pickier when selecting bids because of increasing labor and supply prices."

"As these realities set in, the implications for contractors grow tremendously," said 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 8.5x increase in general contractors using retirement savings to float payments for their business."

"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. Developers can't control inflation & 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."

To view the complete 2022 Construction Payments Report, click here. For more information about Rabbet, visit rabbet.com.

About Rabbet

Rabbet is transforming the construction finance industry with tailored solutions that provide the complete picture of real estate construction portfolios. Designed for real-time workflows and comprehensive insights, Rabbet enables real estate developers, lenders, investors, and related service providers to lower operational costs, make more informed decisions, and earn trust with other financial stakeholders. Founded in Austin, TX in 2017, Rabbet has improved visibility and efficiency for over $40B in construction capital. For more information about Rabbet, visit rabbet.com.

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Contacts

Trisha Patel
tpatel@rabbet.com
(833) 474-6759