Understanding the Impact of Delay in Start-Up
The fundamental challenge is that a Builders’ Risk loss isn’t always about the cost to repair the physical damage. A relatively contained physical loss can create a much larger financial consequence when it affects the project’s critical path.
For example:
A water intrusion event damages electrical equipment at a data center. The physical damage may be relatively straightforward. But if replacement equipment has a 9-week lead time, the real claim becomes about commissioning, project sequencing, contractual milestones and completion and the potential trigger of the Delay in Start-Up-DSU Endorsement.
Hypothetical Example: Data Center Electrical Loss
Consider a water intrusion event at a data center that damages critical electrical equipment. The physical damage itself may be relatively limited, for example, $1 million in repair and replacement costs. However, the replacement equipment has a nine-week lead time.
On the surface, a nine-week replacement period may not appear to create a significant project impact. But on a complex data center project, the replacement of a critical electrical component can affect far more than the equipment itself. The Technical Claims Professional must understand how the damaged equipment fits into the project’s overall commissioning plan, construction sequencing, critical milestones, and anticipated completion date.
The key question is not simply “How much will it cost to replace the damaged equipment?”
It is: “What impact does the loss have on the project’s ability to achieve its scheduled completion and start-up?”
Here are a few areas of a claim that would need to be evaluated.
1. Commissioning and Testing
- Was the equipment required before integrated systems testing could begin?
- Could testing of unaffected systems continue?
- Was the damaged equipment part of a larger electrical system or commissioning sequence?
2. Project Sequencing
Can the contractor resequence the project? Construction projects rarely operate in a simple linear fashion. While one component is being repaired or replaced, other trades may be able to continue working.
Consider:
- What work could continue during the replacement period?
- Could unaffected areas be advanced?
- Could commissioning activities be performed in a different sequence?
- Could additional resources or shifts mitigate the delay?
3. Critical Milestones
We must identify the project’s key milestones and determine whether the loss affects any of them.
For a data center, those milestones could include:
Equipment Installation → Energization → Systems Testing → Integrated Systems Testing → Commissioning → Substantial Completion → Client Acceptance → Start-Up
If the damaged electrical equipment is required before one of these milestones can occur, the impact needs to be carefully evaluated.
4. Critical Path
This is where a relatively small physical damage claim can become a much larger Builders’ Risk issue. Was the affected activity actually on the critical path?
If the nine-week equipment replacement can be absorbed through available schedule float or resequencing, there may be little or no resulting delay to the project’s completion.
However, if the equipment is critical to a milestone that cannot be advanced or bypassed, the nine-week replacement period may push the project’s anticipated completion date.
The claim analysis therefore needs to establish a clear connection between:
Physical damage → the affected activity → the critical path → the revised completion date.
5. Anticipated Completion and DSU
The adjuster must establish the project’s expected completion date before the loss and compare it with the anticipated completion date after the loss, while accounting for other factors that may have affected the schedule (concurrent delay).
If the insured physical damage results in a delay that satisfies the applicable DSU endorsement’s requirements, the claim may extend beyond the physical damage to financial consequences of the delay—including, loss of earnings and qualifying soft costs of the Named Insured.
This brings us back to the central point:
The size of the physical damage does not necessarily determine the size of the Builders’ Risk claim. The project’s response to that damage—and its impact on the critical path and completion date—can ultimately determine the magnitude of the claim.
That’s where the Technical Claims Professional becomes much more valuable than someone simply calculating the cost of replacing damaged property. We are aware of the value and importance of the project schedule, preserving stakeholder relationships, minimizing disruption, and delivering strategic claims solutions that support every phase of the construction lifecycle and the resolution of the claim.
For more information, email us at info@englemartin.com.
