The construction industry’s been one of the hardest pressed in recent years. From a lack of skilled labor to supply chain hiccups, construction leaders face some daunting challenges.  

As we look forward into 2023, we invited Allen Overturf, the CFO of Welsh Construction, and Jim Campbell, AvidXchange’s business line executive, construction, to discuss the state of the industry.  

Overturf has steered financial operations within construction companies for more than 25 years. And Campbell is AvidXchange’s “eyes and ears” in the construction industry.  

These industry luminaries discussed three major pain points for construction executives this year, including:  

• Talent shortages for skilled laborers and accounting professionals  
• Project schedule complications stemming from ongoing supply chain issues 
• Payment process hurdles  

Construction Labor Shortages

In February 2023, Associated Builders and Contractors (ABC) announced that, according to its proprietary forecasting model, the construction industry must recruit an estimated 546,000 workers more than its normal pace of hiring to meet demand.  

Additionally, ABC found that the industry averaged 390,000+ job openings per month in 2022, the highest level ever on record. Overturf called these statistics, “more than concerning.” 

“Being a general contractor, we subcontract out between 80 and 90% of our work and all of those subcontractors that we work with … are always scrambling to meet schedule because of their own labor shortages and retirement is outpacing the skill level coming in. So it’s definitely a concern,” Overturf said. “I don’t think the market has adjusted. Fully staffing every day, every week across all subcontractor skill levels is nearly impossible.”

Construction labor shortages extend beyond the skilled trades to internal operations. The National Center for the Middle Market’s latest Middle Market Indicator report revealed that 52% of surveyed construction executives said talent management would be a top internal challenge over the next 12 months.  

That challenge is even more pronounced in finance and accounting departments. In a survey of mid-market execs conducted by RSM, 23% said it’s been “extremely challenging” to hire finance and accounting talent in the last 12 months.  

Both Overturf and Campbell have seen firsthand how this labor shortage is impacting mid-market construction firms, causing them to seek solutions that automate mundane tasks and support a culture that meets the needs of today’s employees.  

“When we talk about construction labor shortages at large, our mind first goes to the skilled trade, but it is true that it is bleeding into the back office. Construction is not intuitive. Construction accounting, they don’t teach that a whole lot in school,” Campbell said. “There is quite a learning curve. You’ve got to be passionate about it. You’ve got to be smart, willing to learn. And it’s a lot of hard work. We are seeing an attraction with the new labor force coming in with high expectations of automation.”

Construction Project Timing

Campbell likened supply chain issues in the construction space to a game of Whac-A-Mole, saying, “You just don’t know what’s going to pop up.” Overturf added, “That Whac-A-Mole game is really fun. But in the real world, that is a lot of stress.” 

Material shortages leading to project delays are pervasive in the industry. A National Association of Homebuilders survey revealed that in October 2022, more than 80% of single-family builders experienced a shortage of appliances, transformers, windows and doors.   

Surprisingly, delays aren’t the only scheduling challenge Overturf and Campbell see across the industry this year. Many construction firms are faced with the catch-22 of early materials delivery.  

When deliveries are premature, firms must figure out a way to accept and store the materials or risk not having them when needed. This leads to logistical complications and additional storage expenses for construction businesses.  

“When you get the materials early, it’s a problem. If it’s late, it’s even a bigger problem,” Overturf said. “As a general contractor and working with all of our subcontractors, we’re faced with how do we store it and accept it?  Because we want to grab it now, otherwise we’re not going to have it available when we need it.”

Overturf and Campbell agreed these issues are putting a strain on firms and their relationships with subs, suppliers and customers.

“We found ourselves quickly in a different world. And I would say to solve this or reduce some of that friction, owners are going to have to be more aware of the realities of what’s going on,” Campbell added. “If you’re going to get an end product that you’re satisfied with in today’s world, you’ve really got to be more flexible.”

Construction Payment Process Hurdles

The current industry labor and materials shortages impede payment timing. In construction, this process is already complex due to high upfront costs and the frequent use of subcontractors.  

“General contractors today, the relationships between them and their subs have never been more important,” Campbell said. “And one of the things that does make a good relationship is timely and accurate payments. I’ll hear it from the subcontractors or the trades’ point of view. They’ll say, ‘They’re a good GC to work for, they pay well.’”

Overturf shared that his company adopted automation to better manage payments with subcontractors. He’s found this creates a win-win environment, ensuring subs maintain healthy cash flow and remain dedicated to the jobs they’re working for Welsh.

“We automatically send reminders to every subcontractor that has an unbilled amount. We send them a reminder and say, make sure you get your billing and send it to this email address and make sure you don’t miss that deadline,” Overturf said. “You can’t work as a team if you’re setting somebody up for failure and just say, ‘Well, you missed the deadline, so you’re going to have to wait another 30 days.’ That creates a rub. And as Jim talked about, that rub isn’t going to work out very well for anybody.”

Construction Lien Waiver Process

Lien waivers introduce another layer of complexity to the construction payment process. The highly manual exercise begets a lot of unproductive time chasing paper.  

Campbell explained that AvidXchange’s TimberScan offering will soon support lien waivers, notifying AP pros of outstanding issues and allowing them to address matters with a click – all on a single screen. This solution will streamline work for stretched financial teams.

“The lien waiver process today typically is highly manual and it’s just another choke point that introduces nonproductive time in a paper chase,” Campbell said. “What we’re doing there is associating outstanding lien waivers with future payments and then with the click of a button, you can see what’s outstanding and take action on it from there, all from a single screen. … If we can put this on an electronic platform, we think it can ease a lot of friction and eliminate a lot of the paper chase.”

Learn more about Lien Waiver Management with AvidXchange.