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CLIENT BRIEFING

Delay in start up (DSU) insurance for construction projects

A delay in project completion can severely impact income streams derived from construction projects. Marsh examines the role of Delay in Start Up (DSU) insurance to mitigate this risk.

16/01/2022 · 3 minute read

Project owners and lenders are fundamentally interested in any future income streams derived from construction projects. These can be severely impacted by damage to the contract works causing a delay in project completion. This client briefing explores the role of Delay in Start-Up (DSU) insurance.

What is delay in start-up insurance?

Delay in start-up (DSU) insurance (also known as advance business interruption or advance loss of profits) insures project owners for the financial consequences of a delay in project completion resulting from insured physical damage.

Demand for DSU insurance has increased significantly in the last few decades as project owners look to mitigate the financial impact of delays to their projects and project lenders increasingly require the purchase of DSU as a condition of offering limited recourse finance. 

Who are the insured parties for DSU insurance?

The insured parties comprise the project owner, sponsors and lenders, being the entities likely to suffer a financial loss if a project is delayed. On rare occasions, contractors may also be insured i.e. under concession contracts.

How does DSU differ from business interruption?

There are two key differences between DSU and business interruption:

  1. DSU considers future rather than current income streams, which are the subject matter of business interruption (BI).
  2. DSU relates to the delay between the originally anticipated commercial operation date and the achieved date of commercial operation resulting from the insured physical loss; BI relates to interruption of operations from the date of loss.

What is excluded under DSU?

Typical exclusions under DSU include but are not limited to:

  • Fines and penalties
  • Slow performance, inaccurate scheduling, late delivery of materials
  • Inadequate funding to complete the project
  • Public authority restriction
  • Communicable disease/COVID-19

What is a DSU claim?

To be considered valid, a DSU loss must fulfil three key criteria:

  1. An event indemnifiable under a material damage policy such as contract works
  2. Cause a delay to the completion of a project that exceeds the time excess agreed in the DSU policy
  3. The delay results in financial loss to the insured such as gross profit, revenue loss, loss of rental or fixed costs

Does DSU cover the increased cost of working?

Increased cost of working may be incurred to reduce or avoid project delay. This expense would be covered by DSU insurance provided that it was incurred solely for the purpose of avoiding or reducing the loss and did not exceed the amount saved. 

Download the client briefing paper for more information.

CLIENT BRIEFING PAPER

DSU Insurance for Construction Projects

Download

LCPA 22/006