Construction project delays: proactive management

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.

Applicable terms

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.

Exclusions

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.

Learn more about our expertise in construction insurance