Issue link: https://cp.revolio.com/i/522582
24 | THE DATA CENTER JOURNAL www.datacenterjournal.com the overall aPProaCh a traditional approach to construction is to prepare a complete design and then solicit bids from contrac- tors to perform the work—a process oen called design-bid-build. According to Scott Ruch, principal and critical-facilities practice sector leader for architectural firm Corgan, the data center industry typically uses a slightly different approach. Called construction manager (or construction management—CM) at risk, "the contractor agrees to a fee rate and overhead costs associated with a scope of work. e overall construction cost is not settled at the time of execution of the contract. is is as opposed to a construction contract where the contrac- tor is agreeing to single lump-sum price inclusive of all costs based on the contract documents." Ruch added, "By adopting this format, the CM can achieve a more compact schedule by virtue of prepurchas- ing equipment earlier in the design phase and carefully orchestrating on-site activi- ties to support installation of equipment." Ruch identifies three areas of a CM-at-risk contract that require care- ful scrutiny and delineation: equipment procurement, insurances and inclusion of contingencies. An equipment-procure- ment arrangement with the CM, which would then purchase MEP (mechani- cal, electrical and plumbing) equipment directly, can bring cost benefits through economies of scale. Customers "benefit from the buying power of the CM, which would typically charge a lower fee on equipment procurement than subcon- tractors would charge," said Ruch. But he also noted that customers should ensure that their CM has the in-house expertise to manage direct equipment purchases. On the insurance side, they can benefit from shopping around—looking at both independent insurance providers and poli- cies that the CM may offer. Sometimes a third-party provider is a better deal, but as with equipment procurement, a large CM may be able to offer less expensive policies simply owing to volume. In any large project, something will go wrong—or at least something will go other than according to plan. Ruch notes that leaving room in the contract for contingencies can be helpful. "We highly recommend that the owner take an ap- proach to the construction contract that includes some amount of contingency for unforeseen circumstances," he said. "We have seen owners attempting to push all of the risks associated with a project on the CM. It may seem to make sense, but in the end the CMs are going to protect themselves in some way against that risk." From the construction manager's perspec- tive, if all of the project risk falls on one side, then the only way to mitigate that risk is to charge more. Effectively, then, the customer is paying an "insurance" fee to the CM. Ruch said, "We recommend a more measured approach that allows for some margin for error and unforeseen oc- currences by virtue of a contingency. e contingency can be in many forms. Design contingencies, construction contingencies, owner controlled, CM controlled and so on. Part of the contract negotiation should involve detailed discussions about what is appropriate for the particular project." get legal anD Design Counsel A contract for data center construc- tion involves a lot of money, so it's impor- tant to ensure that the language means what you think it means before you sign off. Unfortunately, the words in a contract may not say quite what you think they do, partly because both sides may come to the negotiations with certain preconceived notions and partly because legal language is its own field of expertise. "We would always recommend that our clients have professional legal advice when negotiating a contraction contract. Even the smallest data center build consti- tutes a significant expenditure, in a project type that can be very complex," said Ruch. But he also advised companies to avoid relying on an attorney with only general legal experience and to seek out one with experience specific to construction. "ere are industry practices that don't always make sense to people that haven't had exposure to construction. We have seen non-experienced legal representation actu- ally cause additional risk and cost to their clients in contract negotiations." On the technical side, assistance from a design professional can also help avoid surprises once the project has start- ed. "Part of the design professional's role as the owner's advocate is assisting with in- teraction with the contractor," Ruch noted. Such services "in conjunction with legal counsel with experience in the construc- tion industry are a great way to avoid com- mon issues." In both cases, it's also helpful to choose an adviser with experience as close to your particular project as possible. For instance, a colocation data center will typically involve different design nuances than a dedicated enterprise data center. negotiate With the ContraCtor—Wisely Given the size and scope of a typi- cal data center construction project, you should expect to be able to give and receive some leeway on the contract details. Although it's important to ensure that you clearly express your requirements and "nice to haves," it's equally important to leave room for the expertise of the CM. In particular, CMs will generally be familiar with industry practices and will In any large project, something will go wrong—or at least something will go other than according to plan. Ruch notes that leaving room in the contract for contingencies can be helpful. "We highly recommend that the owner take an approach to the construction contract that includes some amount of contingency for unforeseen circumstances," he said.