Construction Curiosities #66

6 Ways Subcontractors Have Been Underserved

Hey! Happy Saturday! Matt here.

Welcome to the Construction Curiosities newsletter. Especially the 26 new readers this week!

This weekly Newsletter explores my Curiosities about the Construction Industry. It's meant to make you think, smile, and become a better, more thoughtful Construction Professional.

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Summary

This week we will look at:

• One Guest Post: 6 Ways Subcontractors Have Been Underserved

• One Article: ABC’s Construction Backlog Indicator

• One Meme: Electrician Starter Pack

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One Guest Post

Last week’s guest article from Cory Thomas-Fisk was a success and I got a ton of great feedback.

This week’s guest author is Hayden Abrevaya, Product Marketing Specialist at Billd, Social Media/ Web Design freelancer, and fellow Aggie. 👍

Take it away Hayden!

6 Ways Subcontractors Have Been Underserved

1) Being forced to bankroll projects

GCs have a lot to balance and some things tend to get pushed off as being less important. They deal with schedules, project owners, architects, engineers, materials, and tons of different subcontractors.

That leads GCs to prioritize certain things, and one of the things that gets deprioritized is paying subcontractors. I don't mean not paying subcontractors at all. I mean paying subs 1 day, 2 days, 5 days, 10 days, 30 days, later than they could have been paid. The priority isn't there, and that's because GCs, don't feel the pain of slow pay as much as subs.

What GCs often don't understand is that subcontractors are truly having to bankroll multi-million dollar projects. Subcontractors due to the nature of their businesses (and their broken payment terms with GCs) have a much harder time securing outside funding, which forces them to put their own capital on the line when taking on projects.

2) Supplier terms

Supplier terms are predominantly 30 days, but the truth is that doesn't really make sense. Yes, supplier terms are still great for businesses, but the average time it takes a subcontractor to be paid after starting work on a project is 74 days. That means that most subs are still floating the cost of materials for 34+ days, and that's if they are able to qualify for financing. 

Options like Material Financing by Billd are starting to enable subcontractors to get terms that actually make sense for their businesses. 

3) Lack of transparency

Subs prepare submittals, purchase hundreds of thousands of materials, mobilize their skilled trade teams, and then submit their first invoice..... And then there are very few proactive updates. They're left just waiting for a check in the mail. A sub can chase down the status through their GC but that is an unnecessary hassle for both GC and sub. 

Consider adding real-time updates in the payment processing process so the subcontractor always knows their pay app status and expected payment date. How hard would it be to add the following transparency?

GC review, GC acceptance, submission to the owner, owner review, owner approval, bank review, bank approval, funds disbursed to GC, funds disbursed to Subcontractor. 

4) Retainage

Retainage is one of the worst things for the construction industry. Is retainage necessary? Yes. But the way it's done right now often holds up the entirety of a subcontractor's profit on a project, how are subs supposed to feel like a valued partner on your project if you're holding money over their head that they've already performed and installed work for. 

This is *slowly* changing across the country. Washington State just enacted a law that is a huge step forward for the industry (it just needs to be adopted elsewhere):

• Only 5% retention on private projects (excluding single family with less than 12 units) may be withheld by an owner, contractor, or subcontractor

• 12% annual interest accrues on late payments to a subcontractor

• Project retainage shall be released as a sub/contractor completes their work (no more waiting for the entire project to be completed)

• 0% retainage when a contractor or subcontractor tenders a bond. 

5) Technology hasn't been created for subs

This is certainly starting to change, but the majority of construction technology platforms were built for the needs of GCs, not subcontractors. Subcontractors have been underserved when it comes to technological solutions that were built specifically with their businesses in mind, it's only really been in the past decade that subcontractor-specific technology has started to be created at a similar pace to GC-focused technology.

6) Subcontractors haven't had easily accessible resources for marketing and other business functions that they don't need full-time people for

Luckily this one is also changing. There are lots of companies and freelancers out there that are trying to help out subcontractors in circumstances where they don't need a full-time resource like HR, recruiting, marketing, website development, and more.

If you are a commercial contractor looking for an updated website or help managing your social media you can reach out to Hayden Abrevaya who works with construction companies as a freelancer.

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Thanks for the insightful article, Hayden. I also share a passion for Helping Subcontractors for many of the same reasons. Primarily due to the lack of training and Project Management support out there for them.

If you’re a subcontractor and need help implementing effective and efficient Project Management practices or PM training to help with all 6 of the struggles above. Let me know!

I’m not quite ready to roll it out to the public yet, but I’d love to give the Construction Yeti community the first opportunity to see what I’m building!

Oh, and if you have an interest in writing a guest article and are brave enough to let me meme it up. Shoot me an email at matt@constructionyeti.com

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One Article

ABC’s Construction Backlog Indicator Steady in August, Contractors Remain Confident

“There’s no sign of a construction recession in the near term,” said ABC Chief Economist Anirban Basu. “If anything, contractors are more upbeat, as policy and technology shifts along with economic transformation, are creating substantial demand for improvements and growth in America’s built environment.

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One Meme

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