What are the commercial and legal implications for the construction and procurement of data centres?

07 November 2017

Marco Nicolai

With the growing number of "smart” devices and systems, digital data transfer lies at the heart of the so-called Fourth Industrial Revolution.

Physical IT infrastructure has a critical role to play in this. Data centres in particular have always been unique real estate assets, in that the value of the equipment and technology greatly outweighs the value of the building itself. However, the value of data centres is becoming increasingly dependent on the reliability of the software that runs and manages its internal systems. These data centres are now being developed to rely less on human intervention and more on what is often described as “artificial intelligence" (AI).

At the heart of this technological revolution is the integration of the physical and digital worlds.  We are now seeing the fusion of industries that have previously been viewed as disparate in numerous respects. It is therefore vital for advisors to understand the "mood" of these varying industries in terms of their constraints and their flexibility options in order to develop creative solutions that bring them together in a fully integrated manner.  

This influx of new technology systems means that end users are becoming more demanding when it comes to efficiency, security and service levels.  As a result, there is now greater scrutiny of commercial arrangements in the built environment than ever before, and solutions that may have been perceived as being acceptable until now are being seen, increasingly, as inadequate and outdated.

So in this new digital world, what are some of the most significant commercial and legal implications for the construction and procurement of data centres?

Commercial contracts: Reflect the technical and practical solutions

Data centres that incorporate the latest technological solutions can give rise to complexities when it comes to assessing whether accepted industry standards exist or have been met. Advisors must understand how technical solutions have evolved over time, in order to assess whether previously applicable industry practices remain relevant. This applies particularly to matters such as the integration of different systems where the interrelationship between different components is critical to overall functionality. Technically, this will be achieved by the suppliers ensuring that the necessary interfaces are built into their solutions.  In practical terms, this process will require suppliers to consult and co-operate with one another as well as contractors and professional teams to come up with new and innovative solutions. The best commercial contracts will reflect the technical and practical solutions adopted by the parties and it is likely that in many instances that will require the re-thinking of traditional approaches.    

Cyber security: Install robust data protection and data governance solutions

As connected real estate, data centres increasingly have to be protected against cybersecurity risks. There’s nothing new about organisations taking steps to protect their information systems against hackers. However, recent years have seen exponential growth in the number and variety of cyber threats. Cybersecurity has become an issue for every boardroom and requires a highly integrated, international and proactive approach, particularly where clients are planning to upgrade their data centre with the latest technologies and connected systems. Any data centre "fit for the digital age" must ensure it is designed with robust data protection and data governance solutions, especially if they are based in a regulatory environment which imposes significant fines if the infrastructure doesn’t comply with the latest regulations. 

Upgrade Equipment

Depreciation of equipment must be addressed.  This can be tricky because technological advances can make equipment become redundant unexpectedly quickly.  Options for upgrading equipment need to be considered at the early design stage so the initial investment is protected from new innovations. In this respect, retaining control of suppliers, specifications and costs of components is important and ensuring factory-acceptance testing of equipment before incorporating into the overall system remains relevant.  

Manage energy consumption

Energy management is of central importance and is often the principal driver in plans to procure smart data centres or to retrofit existing data centres. Energy consumers continue to take greater control of their energy needs including scrutinizing to a far larger degree where they buy energy, the type of energy they buy and how they manage their energy consumption. On distributed generation alone, a wide variety of technology solutions are available including combined heat, cooling and power, wind, solar PV, waste to energy and biomass and biogas. However, there are still barriers to overcome such as long and complex procurement processes and the risks associated with investing money with potentially long-term paybacks in processes that are still some way from being fully established. By having clear targets, good communication, verifiable data and standardised processes, the data centre industry has the potential to lead the way in achieving several millions of pounds of energy savings.

Responsibility for building performance

As buildings become more complex with multiple connected component parts, achieving clear lines of responsibility for building performance is becoming increasingly important but also a difficult objective for clients to achieve. This is an area where the construction industry still has some way to go in order to catch up with modern demands although certain solutions are already providing very encouraging results such as the use of BIM strategies, new insurance models, JV structures, partnering contract inspired arrangements and innovative payment structures.

Whilst it is clearly still important for data centre advisors to appreciate the potential impact of issues that have always been present in construction projects such as physically defective equipment and defective installation, nowadays there needs to be a much higher level of awareness of the issues arising out of the technological revolution.

Embarking on a new data centre project is now so much more than a design and construction project with accompanying real estate and commercial elements. A new breed of experts is required at all levels and in all disciplines. The strict demarcation between specialisms such as real estate, construction, engineering and IT is no longer suited to the challenges of the future. The Engineering and Construction industry is evolving into something that would far more appropriately be referred to as the Engineering, Technology and Construction industry with "Technology" sitting at the very heart of it.

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