Will AI change the way data centres are delivered?

There was a lot of talk at the DCD>Connect conference which took place this month in Dubai about the significant differences in design requirements that data centres which are built to handle AI functions have over the more “traditional” cloud storage data centres.

Whilst lawyers are no experts on the technical needs and functions of a data centre, it seems clear that data centres built to accommodate the serious computing power needed for AI learning processes will come with much higher power demands, as well as larger capacity racks for the processors, improved network cabling, and a need for more efficient cooling solutions (direct-to-chip liquid cooling looking like the current direction of travel). That’s just the simplest nod to the highly complex design issues faced by data centre developers.

Alongside those technical challenges, the rapid pace of chip development is driving end users to ask for more flexibility and upgradability in their data centres, and faster delivery, to futureproof their position in the technology race. For developers, this can pose an additional challenge, with design changes and tight programmes trying to coexist with a limited supply chain and stretched talent pool.

A focus of a number of discussions at the conference was whether off-site modular production of “plug and play” components was the answer to this delivery pressure. Off-site construction certainly has some benefits – considered to be speed of production, quality control and consistency, simple installation, and fewer site constraints on the work. But conversely it can come with an increased insolvency exposure, design interface issues, storage and logistical challenges, and site sterilisation if large deliveries of modules are held up, or are defective. All these risks are starkly amplified on a data centre project where supply chains are constrained and lead times are already long, and there can be substantial adverse consequences upstream for late delivery.

If designs are going to shift towards plug and play modularity, there needs to be development on the manufacturing and supply side to support this. Without that, developers rely on a traditionally procured “stick build” approach, which doesn’t have as much flexibility to accommodate changes to specifications or output requirements at late stages. Suggestions were made at the conference that a hybrid approach could be the optimal solution, to allow the deployment of some core modular components, such as power modules or compact cooling solutions, with the programme flexibility to re-sequence some parts of the works if there are delivery or quality issues that come up.

So what does that look like from a procurement perspective for a construction lawyer? We need to think about some of the extra risks and challenges that might be thrown up.

As mentioned already, off-site manufacture of high value critical components brings with it a heightened supplier insolvency risk, as well as bigger risks of products being lost or damaged in transit. Typically these are mitigated – financially at least – by the use of insurances, bonds and guarantees (performance bonds, as well as advance payment bonds where necessary), and vesting certificates to protect ownership of modules which remain off-site. A further step might be taking security over the components which make up the modules. A combination of measures like this can help to de-risk the financial dangers, but consideration needs to be given to the availability of other suppliers or manufacturers to step into an insolvent supplier’s processes, or their ability to make use of any secured components.

Then there is the design interface between different modules, or between the modules and the shell. Typically developers (and their lenders) like there to be a “single point” of responsibility for the whole project delivery.  Which means the main contractor having to take on the risk of the off-site suppliers and their kit, and the interface of design and connection when “zipping up” all the pieces together. We’ve touched on the practical matters that crop up, like the extra logistical, administrative, and programming considerations. But a main contractor required to take on full design responsibility for the project will need to be fully conversant with all the component modules, their specifications, and how they interface, physically and technically. Similarly, if the developer is procuring modules directly, it will need to give careful consideration, supported by explicit drafting across all of its contracts, as to where design risks sit in the project to avoid any gaps in liability.

After that, we might need to consider geographical location and jurisdictional issues. With a globalised supply chain these issues come to the fore, and parties procuring from overseas need to consider the effect of local law, and the practicalities of enforcement (including the availability of other manufacturers in the region to step in if required).  A particularly pertinent example of differences in local law is the application of the UK Construction Act. Whilst the Act won’t apply to contracts for off-site manufacture and delivery only, it will apply (on a UK scheme) if the contract also includes for installation. Developers, contractors and suppliers all need to bear that in mind when delivering UK schemes as there may be different rules on payment and adjudication that apply to different parts of the supply chain. Of course, we’d be remiss not to mention the current tariff landscape – take a look at our tariff tracker, as well as our recent article on the impact of tariffs in construction projects for more information on that.

So as well as careful consideration of the commercial risks of the chosen procurement route, developers and contractors will need to work with their advisers to consider, and properly draft for, the associated legal risks. Speakers at the conference also observed that on a macro level the industry should focus on holistic and proactive early planning, sourcing components as early as possible, identifying what can be sourced locally and what needs importing, and working with smaller suppliers to diversify and upskill the supply chain to make it stronger over time for the whole sector.