Cover for Delays in Construction Start-Up

Delays in project completion – the implications, detail and how to provide cover

Terminology here requires a little explanation.  It appears that there are several terms for similar things. You may have heard of the following:

  • Delay in Start-Up Cover (DSU)
  • Advanced Consequential Loss (ACL)
  • Advanced Loss Profits (ALOP)
  • Advanced Business Interruption (ACL).

It’s important for brokers to have knowledge of DSU covers as the owner in almost all projects will suffer from some financial loss if damage to the project delays its expected completion date.  DSU covers attach to Single Project Policies for the benefit of the owner or principal.  We usually express excess in terms of excluded time after anticipated completion.

The simplest form of DSU covers the (“standing charge” of) additional interest incurred because of delay in completion of the project.  You can also cover other types of consequential loss of anticipated rental; income, loss of gross profit, increased cost of working and claim preparation costs.  You can also combine these covers.

An owner may argue that the liquidated damages (LD’s) allowance in the contract (which is a damages amount payable by the contractor if completion is delayed) provides sufficient cover in the event of delay.  However LD’s are often impractical as they can be defeated at law, by variations, extensions of time and weather delays.  The contractor may also have insufficient funds to cover the LDs.

DSU can generally not be covered by an insurer independent of the material damage cover.  This will ensure repair funds are readily available and repairs proceed expediently to mitigate any further delay.

DSU cover normally commences when the project work starts.  It usually ends at the same time as the material damage policy – but it does not extend in to the defects liability period.  Cover is triggered by damage which is insured by the material damage policy.  The indemnity period begins on the scheduled date of project completion or anticipated date of business commencement.  The indemnity period needs to be long enough to allow for the worst possible event.  It needs to allow for complete demolition, redesign, reordering components of rebuilding.  This can be considerably longer than the original construction period.

DSU covers actual financial loss insured which was incurred during the indemnity period as a result of delay.

MECON can assist with further information on DSU cover and insure DSU covers if required.

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Update from Glenn Ross

Latest update from Glenn Ross

Dear all Firstly a word to the wise: If you have been following the media relating to the construction industry, you will know that your clients