A construction project time schedule demands the coordination of numerous moving parts, the ability to factor in ‘float’, or ‘slack’, and having contingency plans in place for when the unexpected occurs. Many common causes of delay to projects are within the involved parties' control, but there can also be factors that are not, such as extreme weather and other acts of God.
Managing the manageable
Over the last 10 years the demand for delay in start-up (DSU) insurance has increased across infrastructure, property development, mining and various other forms of capital works in order to protect the project participants from the financial effect of delay. It is also commonly a requirement of banks or other parties of equity or debt.
DSU is activated under material loss insurance cover such as a contract works policy and triggered by an indemnifiable loss.
The loss only comes into effect once the project has been delayed beyond its original operational deadline.
While the delay may be caused by a number of indemnified events occurring during a construction period, only a single claim would be made for delay in the original project timeframe. Only one deductible would equally apply.
To be considered valid, a DSU loss must
be based on an event that causes material damage and is covered, or would be covered, but for the applicable excess under the relevant material damage policy
cause a delay to completion of the project that exceeds the time deductible in the DSU policy
involve a resultant loss to the insured, such as loss of gross profit or revenue, fixed or debt servicing costs, or increased costs of working.
The full extent of the effects of a delay only becoming apparent towards completion of a project mean that insurers usually have to take a post-loss approach to analysing claims.
Do the maths
The amount paid on a DSU claim is measured as both the sum insured and the maximum indemnity period. Insurers liability is limited by both so the maximum indemnity period should reflect the maximum rebuild time and the sum insured cover projected financial exposure for that time.
Typically DSU doesn’t cover
fines and penalties
non-damage delays such as late deliveries
periods of insured delay that are concurrent with uninsured causes
redesigns, additions or improvements
lack of funding to pay for completion.
DSU cover for construction projects is an important consideration but it’s an area that requires some skilled navigation and active advocacy in the event of a claim.
Talk to an expert
Gallagher’s construction specialist brokers have the expertise and industry knowledge to formulate insurance solutions for complex construction projects and assist stakeholders with managing their risk exposures.