The demand for greater data centre capacity in the UK shows no signs of slowing down. In this latest article in our data centre series, we outline key considerations when constructing a data centre and examine how these factors could impact procurement strategies.

Key challenges in UK data centre construction

Location considerations for data centres

Location of a data centre is key, driven by a range of factors, including:

  • Latency: although this is becoming less critical for non-time-sensitive operations, the time it takes for data to transfer across a network remains important for certain applications. One factor that can impact latency is the distance between the source and the destination of the data; therefore, the location of a data centre can impact latency and overall performance.
  • Energy infrastructure: key concerns here are the stability, accessibility and sustainability of the energy supply and, looking more long term, the extent of sustainable energy generation and the risk of potential future price increases due to infrastructure upgrades which could impact on price competitiveness.
  • Speed of planning permission: the Government has suggested a move towards lowering the barriers of planning permission for data centres, as we previously discussed in this article. The degree to which this will speed up securing planning consent is yet to be seen, and may still be dictated by the attitude of the relevant local planning authority, which can vary considerably across the UK. To help mitigate the challenges around location, the Government has proposed AI Growth Zones - offering areas that will have streamlined planning permission and a ready energy supply. These are dedicated hotbeds of artificial intelligence (AI) development - in areas which can access at least 500MW of power. However, the speed at which planning permissions are pushed through is highly dependent on planning officers understanding the value that a data centre can bring to the wider community, for example, around skills and jobs.

Managing energy supply and sustainability risks

  • As indicated above, the provision of energy to data centres is one of the most important considerations when constructing a data centre. According to the BBC, the power required for data centres is set to increase six-fold in the next decade. With the grid becoming constrained and connections limited, the approach taken regarding energy supply can be essential in determining the profitability and viability of a data centre.
  • In addition, the sustainability targets and reporting requirements imposed by UK regulation mean consideration needs to be given to the viability of renewable or sustainable sources of energy, ranging from waste heat, hydrogen, solar and small modular reactors (SMRs).
  • As mentioned above, choice of sustainable energy sources will also impact location: it can be problematic to find suitable waste heat consumers for existing data centres or the expansion of a data centre campus. Feeding into a suitable district heating network may be an option if it is available, but this is not always feasible and requires high levels of investment.

Multiple stakeholders

  • Data centre projects often face the challenge of meeting the objectives of not just the immediate procurer of the project but many other stakeholders, for example, customers, local authorities and local interests, investors, funders, the layered supply chain, local utility providers and grid connectors.

Retrofitting

  • Retrofitting offers the advantage of avoiding the need to secure a new site and potentially navigate complex planning regulations, while also delivering sustainability benefits. However, given the rapid pace of technological advancement in this field, a recurring concern is the compatibility of legacy systems - such as cooling infrastructure - with newly installed equipment, and vice versa. This often complicates contract negotiations, as the parties may disagree over who should bear the risk of ensuring that existing systems integrate effectively with new installations.
  • Also, when converting an existing asset into a data centre, understanding the requirements of the customer is key. Many have fixed specifications which might not be accommodated via an existing building.

Adhering to the programme

  • As with all construction projects, a fundamental consideration is the allocation of delay-related risks and the implementation of incentives/remedies to ensure adherence to the programme, aligned with customer contracts and third-party service level agreements. In the UK, construction contracts are typically based on standard forms issued by industry bodies - most notably the JCT and NEC - which are then tailored to reflect the specific risk profile of the project. These contracts generally include detailed provisions for managing risks associated with factors such as geopolitical events, material shortages, and unforeseen ground conditions. NEC contracts, in particular, place a strong emphasis on programme management and incorporate valuable 'early warning' mechanisms, enabling proactive identification and resolution of potential issues before they impact delivery.
  • The delay risks associated with supply chains have already been felt in the data centre industry, for example in respect of the delivery of generators and transformers. These are long lead-time items in any event, but the volume of demand is outstripping the manufacturers' ability to supply as quickly. Such shortages can also impact on the cost of delivery both in terms of price fluctuations and rising prices of certain products, such as high-bandwidth memory (HBM) chips, together with the prolongation costs associated with delays, and potential delay damages payable to customers.

Skills shortages

  • While there are several established contractors in the UK market with extensive data centre experience, like the rest of the construction sector, there are skills shortages in the workforce that pose challenges. These are most evident in terms of M&E experience, which, unsurprisingly – in light of the complex mechanical and electrical fit-out data centres entail – accounts for as much as 70% of the work involved in delivering a data centre.
  • Together with raising the profile of the sector as an attractive market to be employed in, other ways to mitigate the workforce challenge are:
    • Modular and prefabricated construction methods: these methods prioritise functionality over form or originality, lending themselves well to data centre construction, and also help mitigate the challenges of programme adherence and carbon footprint; and
    • AI solutions: AI tools can be used to facilitate tasks such as temperature and energy consumption adjustments, monitoring, and data collection and we expect to see rapid developments in this area.

Procurement approaches for UK data centres

  • So how can the range of risks outlined above be managed through contracting and procurement approaches? Traditionally, construction contracts involve three main types of parties: the employer, the designers, and the contractor, each with distinct roles, responsibilities and risk allocation. This segmented approach may not adequately address the dynamic and multifaceted demands of data centre projects. To mitigate this, early contractor involvement (ECI) has emerged as a valuable strategy, enabling contractors to contribute during the initial phases of project planning. This early engagement facilitates more accurate risk identification, improved cost forecasting, and ultimately enhances the likelihood of project success.
  • To mitigate supply chain challenges - particularly in relation to long-lead items such as generators and transformers - early procurement can be utilised. Where the employer has a well-defined pipeline of upcoming projects, opting to procure critical equipment directly for future use (owner-furnished, contractor-installed (OFCI) / free-issue material arrangements) is another procurement route. Early procurement often forms part of ECI.
  • In the UK, a design & build approach is typical for large scale projects. While 'single point responsibility' and a fixed price can provide the benefit of price and quality certainty, it may not be the most cost effective and/or flexible procurement route. An alternative to this model is to engage a main contractor to provide construction management services. This allows the employer to retain greater control of the project and potentially engage specialist contractors directly which helps facilitate use of modular construction and early procurement. However, as with any construction management model, this approach would better suit experienced players in the market, with established relationships within its supply chain.
  • What is clear is that the myriad of challenges outlined above, combined with a shift towards directly engaging multiple suppliers, means collaboration is key to the successful delivery of a data centre project, which may or may not be contractualised. This collaborative approach is often reflected in ECI which often prioritises shared risk management, collective decision-making, and the cultivation of a cooperative working environment among all parties involved. It has also led to the emergence of various collaborative contracts that are designed to enhance engagement, active communication and co-operation. As a result, for data centre projects, traditional contracts may not be the most effective way to ensure project success. Even where a traditional approach is utilised this does not preclude the engendering of collaboration through the manner in which a project is managed by the employer and its wider team.

As the data centre industry continues to boom, it is important from the get-go that procurement approach is at the forefront of project strategy and is reflective of the challenges and risks involved in the design and construction of a data centre.

Want to explore these topics further? Please contact Ruth Griffin and Jocelyn Paulley for expert insights, and stay tuned for more articles in our data centre series.