Legal Briefing

Does the technological revolution affect the procurement, construction and operation of data centres?

The In-House Lawyer Logo

Real Estate | 22 February 2018


Data centres are increasingly key to the transaction of business all over the world, with more and more companies relying on remote hosting for their IT systems.
They are, of course, unique assets in that their success is almost entirely dependent on the guaranteed operation of sophisticated systems regulating the environment in which the equipment is hosted, monitoring that environment, and ensuring the continued operation of a facility at all times.

As a result, data centres are rather different from other real estate assets in that the value of the equipment operating the facility is often greater than the value of the facility itself.

As in all walks of life, the greatest threat to the successful continued operation of a data centre is human error. As building systems themselves become more complicated, the value of data centres is becoming increasingly dependent on the reliability of the software that runs and manages such systems. Data centres are now being developed to rely less on human intervention and more on what is often described as artificial intelligence (AI).

The influx of new technology in construction generally (such as 3D printing, drones, advanced modular solutions) and in data centres in particular (such as AI on energy management, IoT devices, battery storage innovations) means that end users are becoming more demanding when it comes to efficiency, security and service levels. As a result, there should now be greater scrutiny of commercial arrangements related to the procurement, construction and operation of data centres than ever before, and solutions that may have been perceived as being acceptable until now are being seen, increasingly, as inadequate and outdated.

Commercial contracts: reflect the technical and practical solutions

Data centres that incorporate the latest technological solutions can give rise to complexities when it comes to assessing whether accepted industry standards exist or have been met. Advisors must understand how technical solutions have evolved over time, in order to assess whether previously applicable industry practices remain relevant. This applies particularly to matters such as the integration of different systems where the interrelationship between different components is critical to overall functionality. Technically, this will be achieved by suppliers ensuring that the necessary interfaces are built into their solutions. In practical terms, this process will require suppliers to consult and co-operate with one another as well as contractors and professional teams to come up with new and innovative solutions. The best commercial contracts will reflect the technical and practical solutions adopted by the parties and it is likely that in many instances that will require the re-thinking of traditional approaches.

Cyber security: install robust data protection and data governance solutions

As connected real estate, data centres increasingly have to be protected against cybersecurity risks. There’s nothing new about organisations taking steps to protect their information systems against hackers. However, recent years have seen exponential growth in the number and variety of cyber threats. Cybersecurity has become an issue for every boardroom and requires a highly integrated, international and proactive approach, particularly where clients are planning to upgrade using the latest technologies and connected systems. Any data centre ‘fit for the digital age’ must ensure it is designed with robust data protection and data governance solutions, especially if they are based in a regulatory environment which imposes significant fines if the infrastructure doesn’t comply with the latest regulations.

Upgrade equipment

The depreciation of equipment must be addressed. This can be tricky because technological advances can make equipment become redundant unexpectedly quickly. Options for upgrading equipment need to be considered at the early design stage so the initial investment is protected from new innovations. In this respect, retaining control of suppliers, specifications and costs of components is important and ensuring factory-acceptance testing of equipment before incorporating into the overall system remains relevant.

Manage energy consumption

Data centres currently use approximately 3% of global electricity supply and they are expected to run 24 hours a day, 365 days a year without interruption. Experts predict that energy consumption by data centres will treble in the next ten years. Any data centre ‘fit for the digital age’ must ensure it is designed with robust green, energy efficient solutions, especially if is located in a regulatory environment which increasingly imposes greater scrutiny over where energy is bought, the type of energy that is bought and how its energy consumption is managed.

Energy management is of central importance and is often the principal driver in plans to procure smart data centres or to retrofit existing data centres. On distributed generation alone, a wide variety of technological or commercial solutions are available including combined heat, cooling and power, wind, solar PV, waste to energy and biomass and biogas.

Corporate renewable power purchase agreements are also available to assist in achieving long term price certainty and sourcing electricity directly from renewable sources. By having clear strategies, verifiable data and standardised processes, the data centre industry has the potential to lead the way in achieving millions of pounds of energy savings while complying with environmental targets.

Responsibility for building performance

As buildings become more complex with multiple connected component parts, achieving clear lines of responsibility for building performance is becoming increasingly important but also increasingly difficult for clients to achieve. This is an area where the construction industry still has some way to go in order to catch up with modern demands although certain solutions are available provided they are implemented correctly such as the use of BIM strategies, new insurance models or innovative partnering arrangements.

While it is still important for data centre advisors to appreciate the potential impact of issues that have always been present in construction projects, such as physically defective equipment and defective installation, nowadays there needs to be a much higher level of awareness of the issues arising out of the technological revolution.

Embarking on a new data centre project is now so much more than a design and construction project with accompanying real estate and commercial elements. The strict demarcation between specialisms such as real estate, construction, engineering and IT is no longer suited to the challenges of the future.

For more information on data centres, please visit: