Data centres: construction risk, procurement models and delivery certainty

Practical challenges and smoothing the development phase

Development at pace

When speed is the priority, contractors are often appointed hastily on goodwill or ‘off the shelf’ terms. Chosen for convenience rather than fit, such terms frequently prove unsuitable for the project’s jurisdiction or market, insufficiently tailored to its requirements, or silent on key commercial terms.

Another consequence of development at pace is that design and construction can take place simultaneously rather than sequentially, creating challenges for scoping, cost certainty and pricing transparency. This can leave developers at risk of unforeseen costs, liability exposure, or an unintended allocation of risk, particularly where there is no pre-agreement or appropriate contractual machinery to help manage these exposures. In some cases, construction agreements may not fully account for end-customer or tenant requirements, leaving developers with a greater degree of construction and operational risk than they might otherwise have assumed.

Supply chain availability: a continuing factor

A persistent challenge in UK construction is the shortage of design and build contractors capable of delivering data centre projects at the required scale. The gap is particularly acute for those able to manage the rapidly evolving technology involved in high-power-density, liquid-cooled developments. This can mean projects are procured piecemeal, package by package, without the specialist expertise, overarching coordination, or cost efficiencies associated with a single design and build contractor, leaving developers to bear a greater degree of construction risk.

Continuity of service in the operational phase

Maintenance, upgrades and retrofits – whether to improve efficiency, capitalise on existing grid connections, or incorporate updated technology such as advances in liquid cooling – are key concerns for ensuring continued performance and honouring any associated customer or tenant guarantees once a development is operational. Again, speed of delivery with minimum downtime is vital, but avoiding disruption to the operation of the existing centre is paramount.

These challenges can be effectively managed by:

• Allowing adequate time for a well-structured, competitive procurement process;
• Understanding and incorporating the requirements of tenants and off-takers into design and construction;
• Future-proofing the development through design procured at the appropriate stage;
• Understanding how energy demand will be met and ensuring the solutions are integrated into the development from the outset;
• Ensuring project teams procuring and administering the construction contracts are equipped with the right contractual tools; and
• Adopting modular construction to achieve speed, consistency and coordinated design.

Selecting the optimum form of construction contract can be equally enabling or limiting. The right choice helps, but an ill-suited contract can hinder progress just as readily. Developers are increasingly weighing a number of different forms, taking into account the nature of the works and any power-related scope within the project. FIDIC forms lend themselves well to projects incorporating a significant element of power infrastructure, while JCT or NEC forms are also frequently adopted depending on the scope, familiarity with the contract, and the chosen supply chain.

Implications and solutions

The growth of renewable energy assets, including onshore wind, solar, and BESS, has alleviated some of the above challenges and significantly expanded the range of available sites for data centre development. Recent developments such as liquid cooling and associated heat recovery and offtake offer additional opportunities for new sites, as well as the possibility of new ventures with district heating providers.

Looking further ahead, if development of small modular reactors at scale becomes a reality in the UK, these may offer a scalable energy resource without the geographical constraints of current renewables. New market entrants are already looking to incorporate this technology into future projects.

The data centre development market sits at a unique intersection of infrastructure, energy and construction, and must be ready to act quickly to capitalise on emerging opportunities for growth. Where speed of delivery is paramount, a joined-up and front-loaded approach to these interconnected areas is essential.