Building Data Centers: Cost and Risk Management Strategies During and Post-Construction

By James R. Germano, Esq.

Building data center might be similar to other construction project in many ways, they differ in some critical respects. This is the second part of the three-part article series where we analyze how data center project participants can use AIA Contract Documents to address the specific needs of data center projects.

In this second part of the analysis, you’ll find risk management strategies for expansion or multiple phased design and construction projects, facility and maintenance management, uncertainty for labor, equipment or material, and cost management.

AIA contracts can also be used for the construction phase of data center projects. For example, the Master Agreement and Service Order framework described in the Part 1:What Owners and Architects Need to Know applies equally on the construction side. For construction contracts, the A121-2018 Master Agreement should be used with the A221-2018 Work Order. Using this contract framework, owners can enter into a single set of general conditions with a contractor, and then execute work orders for each of the expansions or phases. Similar to the architect set of contracts, this type of contract framework can flow down to the contractor’s subcontractors using the A421-2018 Contractor/Subcontractor Master Agreement and A422-2018 Work Order.

The AIA’s suite of digital documents can be used to ensure that an appropriately populated project model can be utilized for facilities management. For example, the E203-2013 BIM and Digital Data Exhibit instructs the parties to include “facilities management… following completion of the Project” in their Modeling protocols in Section 4.5.1. Additionally, the parties can decide if a post-construction model will be required for the project, using Table 4.9. If a post-construction model will be required for the project, then the parties can determine if such a model will be used, for example, for remodeling, energy management, space management, or maintenance management.

If the parties envision that their data center project might be subject to labor, equipment, or material uncertainty, then they might consider a few strategies to balance the risks associated with those circumstances. For example, the parties can consider using a “cost plus a fee” payment scheme, in which the work is based on the contractor’s actual cost incurred in providing the labor, or procuring the materials or equipment, plus a fee to cover overhead, profit, and other ancillary costs. This might be done for all work to be provided under the contract, or for discrete elements of labor, materials, or equipment identified as having too much uncertainty to reasonably price. AIA Contract Documents publishes a number of agreements that allow for cost plus payment in all delivery methods in all the major project delivery models. These include A102-2017, A103-2017, A104-2017, A132-2019, A133-2019, A134-2019, A141-2014, and A142-2014.

Often these agreements also envision that total payments to the contractor will be capped at an agreed to Guaranteed Maximum Price (“GMP”). The GMP gives an owner certainty as to the amount it will be obligated to pay for the work covered by the agreement. The GMP normally represents the contractor’s estimate for the actual cost to be incurred for the work, plus a contingency for unanticipated costs, and the contractor’s fee. To encourage the contractor to work hard to manage costs, the parties can use a shared savings clause. Shared savings clauses reward the contractor for controlling costs by establishing that the contractor will be paid a percentage of the difference between the actual cost and fee incurred and the GMP. This percentage of the “shared savings” represents pure profit to the contractor, as opposed to the much lower markup it would realize if that money was spent on project costs.

The parties might also consider using an allowance. In situations where the contractor feels comfortable providing a stipulated sum for most elements of the work, consider using allowances for select items. The AIA contracts based on both a stipulated sum, such as A101-2017, Standard Form of Agreement Between Owner and Contractor, and cost plus with a GMP payment method, such as A102-2017 and A133-2019, include fill points for allowances. Additionally, whether based on a stipulated sum or cost-plus basis (with or without a GMP) the AIA contracts anticipate a potential need for the parties to state assumptions and clarifications upon which the stipulated sum, GMP, or control estimate is based. For AIA contracts that are cost-plus agreements but do not include a GMP, the contractor is required to provide a control estimate against which actual costs are tracked throughout the project. For examples, see A103-2017,and A134-2019. These provisions should serve as valuable tools to help manage a certain level of uncertainty in terms of data center project cost.

Data centers often require a high degree of ongoing facilities management and maintenance, in part due to significant cooling and other requirements that these structures require. In this regard, there are many options for useful and applicable documents within the AIA’s library. First, the B210-2017 Standard Form of Architect’s Services, Facility Support whereby an owner can hire an architect to assess the condition, performance and operation of an existing facility or group of facilities. B210 can also be used to hire an architect to perform space management or maintenance management services. B210 may be used in two ways: (1) incorporated into the owner/architect agreement as the architect’s sole scope of services or in conjunction with other scopes of services document, or (2) attached to AIA Document G802–2017, Amendment to the Professional Services Agreement, to create a modification to an existing owner/architect agreement.

Continue to read Part 3: How to Use Consultants and Various Delivery Methods for Data Center Projects

This article is intended for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.