Construction Delay: Risk Management & Claims Solutions

In Asia, developers and contractors of complex construction projects can face significant financial implications when delays occur, with claims amounting to 65% more time compared to the original contract duration and sums in dispute typically higher than one-quarter of a project’s total capital expenditure.¹ Based on Marsh Asia’s data, the number of construction claims has also been trending upwards yearly, with the number of claims in 2023 14% higher than in 2020, with the majority of claims driven by property damage.

Identifying and quantifying risk exposures, and knowing which risks can be insured is the first essential step in avoiding unanticipated losses caused by construction project delays:

Insurable construction risks: Ensuring adequate and cost-effective coverage

With the appropriate limits and deductible structure, insurance can indemnify the policyholder against losses arising from construction delays and help resolve issues by allocating responsibility between developers, contractors, and subcontractors. By providing a clear framework for resolving issues, insurance can also enhance trust and collaboration between stakeholders.

Insurable construction risk solutions include:

• Contract Works insurance
  Provides material damage and third-party liability coverage to safeguard against the risks of theft, fire, vandalism, natural disasters, and third-party property damage or personal injuries arising from the project.
• Delay in Start Up (DSU) insurance
  Indemnifies project developers (and lenders, if applicable) for financial loss resulting from a delay in project completion, for an event covered under the Contract Works (CW) policy. 
• Surety Bond
  A guarantee that holds the contractor responsible for completing the project according to the specifications and obligations of the contract, hence protecting the developer financially from the risk of contractor default or non-performance.

Non insurable construction risks: Identifying and mitigating potential delay-driven losses

Non-insurable construction risks can be identified and addressed with a Pre-loss Construction Delay Review. Conducted by Marsh Asia’s experienced risk advisory and construction specialists, the review empowers project teams with insights to control costs, develop contingency plans, and optimise their project schedules, leading to better streamlined processes, increased efficiencies, and improvements in productivity. 

Claims: Resolving delay-driven disputes with a construction claims specialist

In complex construction project delays, insurance claims are likely to be closely examined by the insurers as there may be multiple causes involving different parties. 

Similarly, contractual claims such as an extension of time (EOT) claim and liquidated damages also face rigorous scrutiny. An EOT claim requires a thorough and methodical analysis of the project schedule to establish causes and liability for the delay, while a liquidated damages claim may require contractual and forensic accounting expertise to resolve optimally.

This case study shows how partnering with Marsh Asia can not only help mitigate delay-driven losses, but may also help minimise the additional time and cost incurred in the claims process:

¹ Crux Insight Annual Report (2022), Battling the Headwinds: a regional analysis of claims and dispute causation. CRUX Insight Fifth Edition: Battling the Headwinds - HKA

^{Disclaimer: Not all risks are fully insurable and therefore a detailed analysis of the risks facing a project, the contractual obligations and the risk appetite of the stakeholders, in consultation with your risk consulting partners, will help enable informed decisions, risk allocation and best practice insurance procurement decisions.}