Construction

Risks associated with sports construction projects

Jason Baston 28 September 2022

Sports projects are amongst the highest profile of any construction activity; think of the Olympics, Wembley Stadium and more recently the new Tottenham Hotspur FC Stadium. With high profile comes significant publicity and scrutiny, which the abovementioned projects can testify to; one delivered on time and two that were very substantially delayed. But what makes these projects riskier and how can a well delivered insurance strategy help?

Delivery risks

We have already mentioned the risk of delay, citing the Tottenham Hotspur FC Stadium as an example of what can go wrong. However in this situation, the Club had an alternative venue, Wembley Stadium (ironically not without its own delivery issues), to host home fixtures.

This is not always possible; take for example the Olympic Games, which are run to fixed dates with little or no flexibility (notwithstanding the Covid-19 related delays to the most recent Tokyo games). In scenarios such as this, the scale and scope of facilities required make securing alternative venues much more challenging.

Insurance against construction programme overrun is not generally available, however delay in start-up (DSU) cover can protect the project owner in the event of revenue loss or additional debt service costs following a physical damage event under the construction all risks (CAR) policy for the works in progress. A DSU policy can also cover alternative venue provision and even project acceleration costs to mitigate revenue loss.

Contractors’ professional risks

UK construction projects are typically arranged on a design and build (D&B) basis, whereby the contractor assumes responsibility for initial design activities by the employer’s architect or engineer through novation. Designs are then concluded and the project delivered largely at the contractor’s risk. This approach, however, can limit the employer’s flexibility in project finalisation as any changes to the project scope can result in additional cost by way of contract variation..

This procurement route has resulted in additional risk being passed to the construction professional indemnity (PI) market and in recent years, particularly following the Grenfell tragedy, insurers have sought to restrict capacity, increase premiums and narrow coverage in response to unprofitable underwriting and unwelcome regulatory scrutiny.

This has created a corresponding issue for project owners as the level and cost of protection available through Contractor’s PI insurance has significantly worsened. The limited remedies available including:

Conducting thorough due diligence on the contractor’s PI programme to establish the adequacy of cover and estimate resilience in the event of a claim
Investigating the possibility of an Owner Protective Professional Indemnity (OPPI) programme to supplement the contractor’s protection

Vulnerability to water and fire damage

The UK construction insurance market has been battling fire damage claims since its genesis. The risks now are undoubtably better managed with the development of the Joint Code of Practice (JCoP) on the Protection from Fire of Construction Sites and Buildings Undergoing Renovation, first issued in the 1990s and now on its 9^th edition. However, fire has returned to the headlines in recent years with significant losses at the Glasgow School of Art (twice), Mandarin Oriental Hotel in Knightsbridge, Primark store in Belfast and, most egregiously, the Notre Dame Cathedral in Paris. New construction materials and techniques, such as timber frames, cross laminated timber, glulam and so on, all add to the fire load during construction.

Whilst fire damage losses grab the headlines, water damage has seen the highest volume of claims. These incidents are characterised by their proximity to project completion and structural penetration, leading to considerable aggregated losses across the industry. Claims include not only damage repair but revenue losses covered under DSU insurance (see above). Whilst insurers have so far restricted themselves to best practice guidance, we anticipate that continuing losses will result in mandatory water-escape risk management measures, such as those provided in JCoP.

Both fire and water damage are at the top of insurers’ list of concerns when evaluating project risk and our recent sports projects experience is that insurers are very keen to monitor the project works in progress by way of site surveys. These are used to ensure that water and fire risk mitigation plans are being properly implemented by the contractor and that the project site is safe and good housekeeping practices are being followed. Failure to observe these risk management requirements can result in insurers insisting on additional exclusions, excesses and so on. Project owners and contractors will need to work closely with their brokers to provide the correct level of information at the outset to ensure that optimal outcomes are achieved.

Existing structures

While not exclusively true, many sports construction project are developed within or as extensions to existing structures. This is a common approach to secure additional capacity and will normally involve a partial closure of the venue whilst works are completed.

The presence of construction works is a significant additional hazard that will concern the property and liability insurers of the operational facilities. This is particularly true in relation to water and fire damage to existing buildings, something that keeps all property underwriters awake at night. Whilst we have addressed this form of damage to construction works above, the risks to existing structures are also high and can be exacerbated by the form of contract used for the project. Certain JCT forms can grant the contractor some protection for fire and water damage to the existing structure and prevent the insurer from recovering, even in the event of negligence.

The insurance interface between project works and existing structures is therefore complex and needs specialist knowledge and experience to ensure that, like the structures themselves, there are no major gaps.

General public interface

Sports stadia and venues attract large crowds, and disgruntled away fans have been known to cause damage to home facilities, including works in progress. The risks run in both directions and a key aspect of matchday preparedness will be rigorous safety checks to ensure that visitors are not exposed to any potential hazards that could cause injury or damage to persons or property.

It is not uncommon in these situations for insurers to impose a higher liability excess, which increases the need for a focused risk managed approach.

How can you best protect your sports construction project?

Deal with a specialist broker that has expertise and experience in these types of project
Engage with construction and property insurers as early as possible to identify any interface issues
Be prepared to share detailed information to secure the best result
Ensure that your contractor is in a position to provide water management and fire protection plans to satisfy insurers risk concerns.

Our team of construction risk experts are here to help across all areas noted above.