Capital Risk Insights

Sisu Project Advisory publishes executive briefings highlighting recurring capital risk patterns observed across major construction programs.

These insights are intended to support owners, boards, and senior leadership in recognizing early warning signals before performance and commercial exposure escalate.

The Fallacy of Design Insurance Payouts

If you are counting on the architect’s insurer to compensate your project for design errors, you have another thing coming.

Context

Design errors drive change orders. Change orders drive cost overruns. Owners predictably conclude: the architect made the mistake; the architect’s insurance should pay.

That assumption is wrong in ways most owners don’t discover until they’ve spent considerable resources finding out.

In Ontario, every architect is insured through Pro-Demnity, a wholly owned subsidiary of the Ontario Association of Architects. Pro-Demnity describes its approach as providing a vigorous defence specifically to counter the misconception that its program compensates owners for project cost overruns. The owner is not engaging a neutral party. They are engaging one institutionally committed to defending the architect.

What Happens

The moment an architect hears a claim may be coming — from an owner’s direct statement, a contractor dispute that implicates them, or a tolling agreement request — they are policy-obligated to notify Pro-Demnity immediately. Pro-Demnity begins building their defence.

Without prejudice negotiations start. If they fail, the matter moves to mediation.

By the time parties reach mediation, four structural constraints have already reduced what is recoverable.

Standard of care: Negligence must be proven. Professional judgment errors are not sufficient.
Causation: Costs must be directly and exclusively attributable to the consultant.
Betterment: Owners cannot recover more than the incremental cost premium.
Multi-party responsibility: Liability allocated across contractor, owner, consultants.

Settlement at mediation reflects litigation risk, not the value of the original change orders.

If mediation fails, formal litigation begins with pleadings, discovery, and trial at materially greater cost and over a significantly longer timeline.

Why It Matters

The gap between what errors cost and what can be recovered through insurance is not a matter of legal skill or claim preparation. It is structural. It exists before the first call to counsel.

The structural nature of this gap is illustrated by a recent policy change: for contracts signed after July 1, 2024 containing a mandatory arbitration clause, Pro-Demnity caps its payout at $50,000 per claim, $100,000 annually, regardless of policy limits or the magnitude of the alleged error.

Leadership Question

Architects make errors. But are your expectations of recovery grounded in reality?

If not, the cost of finding out will be yours to bear.

Two Words That Cost Nothing, Until They Do

Context

When a contractor submits a delay claim, it typically arrives with analytical weight behind it: a schedule narrative, a cost build-up, and a theory of owner responsibility. What often follows is a series of meetings between the parties that feel commercial and cooperative: two organizations trying to find a number, not a courtroom.

That atmosphere is valuable. It is also legally unprotected unless both parties have agreed, in writing and in the room, that their discussions are being held on a without prejudice basis.

In Ontario, settlement privilege, the legal protection that prevents negotiation communications from being used as evidence in subsequent proceedings, depends on the content and intent of a communication, not on whether it is labeled. Unlabeled discussions can sometimes attract protection, but the ambiguity is the problem. Courts resolve that ambiguity case by case, at the parties’ expense, after the damage is done.

What Happens

A well-prepared owner does three things before the first negotiation meeting begins. The meeting invitation states that discussions will be held on a without prejudice basis. The owner’s representative confirms that designation out loud when the meeting opens. And any minutes or summaries generated afterward carry the same label at the top.

Contractors often find this awkward. The two words can feel overly formal for what is supposed to be a cooperative discussion. That discomfort is understandable. It is also irrelevant.

The words protect both parties. A contractor who resists them is either unfamiliar with their purpose or comfortable with the imbalance their absence creates — an imbalance that favours whoever made fewer factual concessions in the room.

Why It Matters

Without prejudice cuts both ways. It protects the owner’s analytical positions from being characterized as admissions. It equally prevents the contractor from treating a settlement discussion as a binding commitment unless the agreement is documented and signed by both parties. Neither side should be in that room without it.

The irony is that in over twenty construction claim negotiations, it has been the contractor — not the owner — who later invokes the without prejudice shield to walk back a position they appeared to accept at the table.

An owner who says, in an unlabeled meeting, “we think the delay was about four weeks and we would be prepared to discuss that number” has made a statement whose admissibility in subsequent arbitration or litigation depends on facts a court will later determine. The cost of the label is two words and a moment of mild discomfort. The cost of getting it wrong is a concession on the evidentiary record.

Leadership Question

Does your team know that what gets said in a negotiation, without those two words, may end up on the record against you?

When Capital Governance Creates Construction Delay Claims

Context

Multi-building developments and institutional owners are particularly exposed where projects operate within complex environments, and construction must coexist with critical interconnected infrastructure, ongoing operations, and evolving design standards.

Across Ontario building projects delivered through Design-Bid-Build (CCDC-2) and Construction Management-at-Risk (CCDC-5B), the largest owner-caused delay claims tend to arise from a small number of recurring drivers. The most significant categories are:

Incomplete or poorly coordinated design
Owner-driven technical or scope adjustments
Delayed approvals or operational constraints
Late design information and slow consultant responses during construction

Together these issues typically represent about 60–70% of owner-caused delay claim value in building disputes. Other contributors include delayed site access, regulatory approvals, differing site conditions, acceleration to meet contractual milestones, and owner-supplied equipment delays.

Although these causes appear in claims as separate events, they often originate from how capital projects are structured and governed before construction begins.

What Happens

In many capital projects, construction procurement begins before the project has achieved sufficient design maturity. This is often driven by funding timelines, board approvals, or pressure to commence construction and achieve occupancy before a major milestone.

Once construction begins, the project enters a cycle where design information continues to evolve. RFIs and change requests increase; responses, revisions, pricing, and approvals are slow; work is re-sequenced; trade productivity declines; and schedules extend. These design delays are compounded by owner-managed regulatory approvals, evolving design standards, shared infrastructure shutdowns requiring weeks or months of coordination, owner-supplied IT networks and specialized equipment, and surprises during demolition and below-grade work.

Individually, each of these issues appears manageable. Collectively, they create an environment where construction proceeds with incomplete information, evolving technical requirements, and delayed decisions. These conditions consistently produce major delay claims.

Why It Matters

In practice, most owner delay risks are predictable and preventable long before construction begins.

They more often reflect misalignment between governance and administrative processes, operational requirements, and construction timelines. Construction schedules require rapid technical decisions, quick approvals, and tightly sequenced work to achieve contractual milestones. When procurement occurs before design is fully coordinated, and when governance, administrative, and operational processes move slower than construction sequencing allows, projects become structurally exposed to delay claims.

In this environment, claims are not simply disputes over contract performance, they are signals that capital governance and construction delivery are operating on different timelines. Under the CM-at-Risk model, procuring construction before design is fully coordinated, often amplifies the magnitude of delay claims.

Leadership Question

Is the Owner’s capital governance structure compatible with the speed, sequencing, and risk allocation of major construction projects?

In other words, the issue is not whether claims occur. It is whether the capital governance model makes them inevitable.

The Hidden Equity in Campus Housing

Context

Ontario has created a favourable environment for university-led student housing. Legislative and fiscal advantages such as exemptions from key Planning Act approvals under Bill 185, development charge exemptions, eligibility for property tax exemptions for qualifying student housing, and substantial HST rebates can materially reduce the cost and risk of delivering purpose-built student accommodation (PBSA) on university land.

Universities also control a critical economic driver that private developments cannot replicate: student demand. Through admissions practices, residence policies, and housing allocation, institutions can stabilize occupancy for on-campus housing.

Taken together, regulatory certainty, tax efficiency, and demand control create a development platform that is significantly less risky than comparable private PBSA projects.

What Happens

When universities partner with private developers, often through long-term ground leases, the university’s contribution is frequently valued primarily as land.

In reality, the institution is contributing much more: planning certainty, accelerated approvals, municipal charge exemptions, tax efficiency, and, most importantly, a stabilized tenant base through institutional control of student demand.

Despite this, many partnership structures compensate universities largely through fixed ground rent, with limited participation in the project’s economic upside.

Why It Matters

Lower development costs and highly stable occupancy materially improve project economics and financing conditions. In effect, universities contribute several of the key drivers of project value – regulatory certainty, tax efficiency, and demand stability, while often being compensated as passive landowners.

Depending on the structure of the deal, financing approach, allocation of development risk, and other factors, this participation can fall in the range of 10% to 20% of project equity.

Over the life of a 70–99 year concession, this structure can transfer significant long-term value to private partners, while universities retain reputational, political, and campus integration risks.

Leadership Question

If universities contribute regulatory certainty, tax advantages, and stabilized demand, is your institution maximizing its equity participation in these partnerships?

Recognizing the pattern is the first step. The next one is a conversation.

Discuss a Capital Challenge

Confidential. No obligation. Senior-level from the first conversation.