Australia: Delay in start-up (DSU) insurance: The expectations, realities and technicalities

Last Updated: 31 October 2014
Article by Wes Rose

Delay in start-up (DSU) insurance claims, and the complexities that often arise in their management, are generally not well understood. This article explains the basic principles of DSU and discusses some of the main difficulties in identifying and measuring indemnified delays.

What is DSU insurance and who needs it?

DSU insurance protects principals, owners, financiers (and others with an interest in the revenue generated by a newly constructed asset) from the financial consequences of delays in completion.

Notwithstanding its relative youth, the demand for DSU insurance has increased significantly in the last decade due to the rise in private sector involvement in infrastructure projects through public private partnerships (PPP) and build own operate (BOO) contracts.

Inevitably, the banks and financiers behind these projects have insisted on DSU insurance to protect their interests.

DSU basics

  • DSU cover is triggered by a delay in completion of a project due to an indemnifiable loss under material damage insurance, such as Contract Works or Contractor's All Risk.
  • There can only be a single claim under a DSU policy during the original project period. However, the delay may comprise a number of indemnified events occurring during the construction period.
  • A DSU loss can only occur once the project has been delayed beyond the original scheduled operation date.

What does a valid DSU claim look like?

A payable DSU claim must include three key elements:

  • an event causing material damage, which is covered or would be covered but for the applicable excess under the relevant material damage policy
  • a resulting delay in completion of the project that exceeds the applicable time deductible in the DSU policy, and
  • a resultant loss to the insured, such as loss of gross profit, loss of revenue, fixed costs or debt servicing costs, or increased costs of working.

Why are DSU claims difficult to adjust and manage?

The criteria for a valid DSU claim looks simple, so you could be forgiven for asking what all the fuss is about. But consider applying those criteria in circumstances involving BOO contracts, where the principal and contractor are related entities, or where there are claims for liquidated damages in the event of delays, or where both insured and uninsured delays arise over the construction phase.

These factors put stress on the traditional DSU model, making underwriting DSU risks more difficult and managing DSU claims more complicated and expensive.

DSU claim analysis

When a claim is made or a potential DSU event occurs, insurers have no option but to respond.

Because there can only ever be one claim under a DSU policy and the potential for delay usually only crystallises as a project approaches completion, insurers usually have to adopt a post-loss approach. This requires adjusters, lawyers and experts to conduct the time consuming and usually expensive task of retrospectively analysing the claimed delay.

Retrospective claim analysis – some cautionary points

Because most DSU claims will involve at least some retrospective analysis, there are a number of factors that should be considered when assessing a DSU claim.

Liquidated damages

The availability of liquidated damages (LDs) to a principal in the event a project is delayed by the contractor's default, can cause serious problems in DSU claims.

Some DSU wordings deal effectively with LDs, but many don't, giving rise to the question of "who pays first"?

Insurers argue that the DSU policy is one of indemnity and that it only responds to actual losses. On this basis, insurers say they're entitled to offset the claim by the amount of LDs the principal may recover from the contractor. However, it's not that simple. Generally, when a project is two years late the last thing the contractor does is admit liability to pay LDs. Accordingly there's almost always a highly contentious question about the contractor's entitlement to extensions of time, versus the principal's entitlement to LDs. These disputes are often fiercely litigated or arbitrated and can run years after completion of the project.

Commercial decisions on material damage

Coverage decisions made at one point in time can have knock-on effects down the track. Consequently, where there's doubt about whether a claim under a material damage policy should be covered and the same insurers underwrite the DSU policy for the project, the terms on which that claim is resolved should be carefully considered.

Delay mitigation

In the case of delay, the remedy of acceleration may not necessarily be applied to the task causing the delay. Insurers are then faced with a claim for acceleration measures on an unrelated part of the project, at a point well after the loss, but still potentially 12 months out from completion.

In such circumstances, how can insurers be certain that the measure will mitigate the delay? Insurers may rightly question whether the acceleration measure proposed is actually masking another uninsured delay.

Is there an insured material damage event?

Is the material damage loss covered so the resulting delay might be insured under the DSU policy? For example, under the LEG 2 or the consequential losses design exclusion, the costs associated with the rectification of a defective component are excluded, but the material damage arising as a consequence of that defect is not. An expert will therefore need to distinguish between the delay arising from the covered consequential damage, and the delay arising from uninsured repair of the defective component.

The difference can be significant. In these circumstances, early issue identification and transparency are crucial.

Act quickly

DSU claims management is rarely simple. However early identification of potential issues and pitfalls, will give you the best chance of avoiding issues entirely, or at least minimising any adverse effects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.