Subcontractor automation boosts profits while cutting costs: report

Dive Brief:

General contractors automating subcontractor management processes are seeing positive results in productivity, costs and profits, but roadblocks are still in some builders’ paths, according to a new study from Dodge Construction Network.
The study, which Dodge performed in partnership with construction software firm GC Pay, reported 91% of contractors who used sub management technology had improved productivity, 81% had lower costs and 79% had higher profits.
The study showed at least twice as many general contractors frequently experienced improved productivity and profitability at a high to very high level when compared to those who are less engaged with commercial solutions, according to the release.

Dive Insight:

The study surveyed mid-size U.S. contractors with $50 million to $500 million in annual revenue to evaluate their use of subcontractor management technology and to identify where new adoption will focus over the next year, per the report.

Dodge’s study benchmarked general contractors’ use of technology for 12 key sub management processes, and then cut those into two categories — accounting and finance, and contract management, according to the report.

Tech adoption varied among participants. Those surveyed reported:

9% automate 1-3 processes.
25% automate 4-6 processes.
36% automate 7-9 processes.
30% automate 10-12 processes.

Those contractors with higher levels of digital engagement saw the most benefits. For example, 53% of contractors in that group reported high levels of improvement for estimates and bidding, but only 13% of contractors with low to moderate digital engagement had a similar experience.

Those with high digital engagement also outpaced their peers dramatically in profitability, with 42% seeing an increase, compared to just 6% of contractors with low adoption rates.

On the flip side, the report found that contractors that aren’t currently automating some of these processes actively plan to do so in the near future, according to the release. For example, more than a third of these users expect to adopt technology for the schedule of values of subcontracts and change orders. About a quarter, or 25%, expect to adopt applications for general subcontract management.

In addition, the survey found 37% of smaller companies, with revenues of $50 million to $100 million, are at very high digital engagement rates, compared with just 23% of larger ones with $100 million to $500 million in revenue, per the report.

The construction industry faces myriad issues around labor shortages and late payments. Payments in particular are a sensitive issue for subcontractors, who are less likely than general contractors to get paid on time.

Indeed, in 2023, subcontractors have increasingly paid out of pocket before getting paid themselves. Results from Austin, Texas-based construction financial support firm Billd showed that 87% of respondents reported paying out of pocket, up from 62% in 2022, according to its National Subcontractor Market Report Survey of nearly 900 subcontractors.

Ensuring that payments are on time has financial repercussions — late payments cost the construction industry $208 billion in 2022, according to a report from construction finance software firm Rabbet.