CONSTRUCTION
Managing stakeholder exposures across people and project requirements
Data centres are high-value projects. Successful delivery depends on collaboration between sophisticated stakeholders throughout planning and construction. Project management must align with the expectations of private equity investors, lenders, public sector bodies and the customers from the outset.
A robust risk management framework – backed by comprehensive insurance against events that could delay completion – gives stakeholders confidence, keeps the programme on track and helps secure the all-important Ready for Service date (RFS).
Developers face a broad range of challenges – from securing behind-the-meter (BTM) power to managing significant water requirements and delivering both sustainably. In some global markets, mounting pressure on critical resources like electricity and water has led to restrictions, or even moratoriums, on new development.
Construction must be planned and delivered to the exacting standards customers expect – and many have specific requirements of their own. Operators frequently work across multiple regions, and expect consistent quality in service, build and deliver.
Protecting the project
Insurers are generally drawn to the data centre sector, viewing these projects as desirable risks given their growing value. But concerns around the accumulation of high-value assets means a consistently high standard of risk management and insurance is vital – wherever in the world the project is.
Essential equipment at critical times
Beyond standard construction insurance, developers must account for the long lead times on critical equipment – transformers, switchgear, generators, UPS systems and cooling equipment. Technology risk, particularly around on-site power generation, is another key consideration.
Demand for this equipment remains high, driving increased costs and placing additional pressure on grid infrastructure. In the event of loss or damage during procurement, transit, installation, or commissioning, replacement can take considerable time, potentially impacting project schedules and leading to delays.
In today’s market, developers increasingly buy this equipment directly, often ahead of its use on future global projects. While the manufacturer or supplier can obtain adequate insurance against damage in transit, the project principal or sponsor must consider if physical loss or damage during transit delays the equipment’s arrival and, consequently, completion of the project. Marine Cargo Delay in Start-Up (DSU) insurance, structured to respond to a loss while equipment is in transit, is well worth considering.
The peace of mind of protection
Loan facility agreements are prescriptive about debt repayment from planned RFS dates, and operators must deliver against them to avoid significant additional debt service costs – and reputational damage. DSU insurance indemnifies the developer against delays to the start of revenue payments where project completion is delayed by insured physical loss or damage. For co-location schemes, or where there’s no customer agreement in place, developers can structure DSU cover around estimated revenue payments or solely focus on continuing debt service and other standing costs while the project is brought back on track after an insured event. It’s a particularly important feature: reassuring lenders and customers alike that the project is well protected, that risks are being managed, and that sponsors and stakeholders are covered if the planned RFS date is missed.
A robust risk management framework gives stakeholders confidence, keeps the program on track and helps secure the all-important Ready for Service date.
Recommendations
Utilising our understanding of the challenges facing data centre projects whether shell, BTM power, or water demand, Lockton actively identifies and addresses key risks by recommending robust risk management strategies. This enhances project viability, reduces financial exposure, and improves insurability. Early engagement with insurers, regulators, and stakeholders ensures projects are well positioned in a challenging and busy insurance marketplace.
Drawing on deep understanding of data centre projects – whether shell, BTM power or water demand – Lockton identifies and addresses the risks that matter. Our robust risk management results in increased project viability, reduced financial exposure and improved insurability. Early engagement with insurers, regulators and stakeholders’ positions projects strongly in a challenging, busy marketplace.
Key considerations
- To secure a truly comprehensive risk management strategy and competitively priced insurance programme, consider:
- Reputation and track record of the general contractor and key supply chain members
- Technology risk – ‘proven vs prototype’. Untested technology may be viewed as higher risk by insurers
- Project delays and cost overruns – specialised materials supply chains and skilled labour
- Supply chain risk management, including lead times for replacing critical items
- Risk management during construction, with particular focus on water management and fire
- In territories exposed to natural perils, including named windstorms, convective storms or earthquakes – what risk mitigation measures are in place?