On most major construction projects, price and programme carry roughly equal weight, although price often has the edge. In data centres, we are seeing that balance shift firmly towards programme. The race to meet AI-driven demand means power, equipment and specialist contractor capacity are in short supply globally and the developers who secure them and deliver projects first secure the tenants.
From a construction contracting perspective, this shift carries a different risk profile from what we typically see on other major projects, as developers are prepared to accept more cost and variation risk in exchange for speed.
Here are some of the contracting and procurement approaches we are seeing used to move quickly, and the contractual risks that come with each.
Procure long-lead equipment directly
Specialist electrical and mechanical plant can carry lead times of 12 months or more. Waiting until the head contractor is appointed to place those orders can put the programme behind before work has even started. By procuring this equipment directly, often before the head contractor has been engaged, developers can get manufacturing underway while tendering, design and early works carry on in parallel. The head contractor then installs the equipment once it arrives. This approach is known as owner-furnished, contractor-installed (OFCI).
However, OFCI splits responsibility and creates interface risk. If equipment fails during testing, it can be hard to pinpoint whether the problem lies with the supplier, the installer or the designer, and that can lead to disputes. Ideally, the supply contracts should be novated to the head contractor, once engaged, so that responsibility sits with one party. If novation isn't possible, the developer will need to ensure that each interface risk is clearly allocated across the supply contracts and the head contract. Otherwise, any risk that falls between them is likely to sit with the developer.
Contract before the technical requirements are fixed
On data centre projects, we are seeing contracts signed while the developer’s requirements are still moving, often because the tenant's technical specification has not been finalised. Waiting for certainty would cost time on the programme. Agreeing in advance how anticipated changes will be priced, and when key design decisions must be made, means changes can be dealt with quickly rather than holding up progress.
The trade-off is price certainty. Disputes often turn on whether a change is design development or a variation to the developer's requirements, so the contract should draw that line clearly.
Incentivise speed, not just penalise delay
Where the commercial model of a project allows for it, early completion bonuses, which reward contractors for finishing ahead of programme, can be an effective tool. Because an early finish is so valuable on a data centre, we are increasingly seeing developers pair these bonuses with the usual delay liquidated damages, so that the contract rewards speed as well as penalising delay.
Any bonus should be tied to the completion or testing milestone the tenant requires. Robust quality control and safety mechanisms should also be in place, so that the push for speed does not come at the expense of safety, quality or performance.