The year is almost over, thankfully, but the COVID-9 pandemic is raging even harder than last March when things started to be shut down in response. Every industry was hit hard by the economic impact of lockdowns, remoting working mandates, and the effects of a deadly disease. Construction, although given essential business status, found its suppliers, workers, and contracts all affected. The result has been delayed or shutdown jobs, slow payments, delayed payments, and even non-payments.

Surveying the industry, Rabbet, a provider of construction finance software for real estate lenders and developers, released its 2020 Construction Payments Report with insights into the rapidly accelerating costs associated with slow payments in the construction industry. Based on a survey conducted in September 2020, general contractors and subcontractors estimate that the cost of floating payments for wages and invoices represents $100 billion in excess cost to the industry, a 56% increase from the cost reported in 2019, the resulting costs being passed on to real estate developers and financiers in the form of project delays and higher bids from contractors.

Rabbet distributes a survey each year to general contractors and subcontractors representing a diverse set of trades. This year’s report captures how 99 survey respondents across the U.S. managed working capital, bidding decisions, and project risks in the face of slow payments during the last 12 months. The data from 2020 was then compared to data collected in prior years.

Key findings include:

• 25% of all respondents reported that work has been delayed or stopped due to a delay in payments to crew members in the last 12 months.
• 41% of subcontractors chose not to bid on a project due to a general contractor or owner’s reputation for slow payments in the last 12 months.
• 69% of subcontractors would offer a discount for payments within 30 days, resulting in an estimated industry-wide savings of $80 billion.

The report revealed substantial increases in both subcontractors and general contractors relying on savings to float payments. The percent of subcontractors relying on retirement savings increased 183% and more than 75% of general contractors supported faster payments for subcontractors.

The repercussions of these changes are only starting to be seen, but many small businesses have already failed, and cash flow consistently remains an issue for subcontractors and contractors. Many firms are starting to look to technology to solve these issues to make sure these businesses survive.

These results support findings from the report where 70% of real estate developers and construction lenders reported seeing room for improvement regarding the efficiency of their construction finance processes.

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