Rising Costs and Slipping Deadlines: What can be Done?

10th August 2022

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Today’s geopolitical challenges mean that data centre projects are facing rising costs, growing lead times, and missed deadlines. What steps can project teams take to limit the damage? Here are five thoughts.

1. Prioritise

Balancing time, cost, and quality – the quality triangle – is always one of the most important tasks of a project team. But right now, with rocketing costs and lengthening lead times, it has become more pertinent than ever.

For data centre construction projects, the revenue start date is usually set in stone, which leaves us to juggle quality, build time, and cost. If quality – and functionality – are also non-negotiable, does that mean that project funders must accept that costs will rise?

The answer to that question may well be yes, particularly for those elements of a project that lie on the critical path. This does not mean that all proposed cost rises should be accepted without thought. But answering this question honestly, in the context of the value the facility will deliver to the business operation it will serve, should help guide the way that decisions are taken.

One important point to note is that attempts to shorten elements of the build or bring more resources onto the site can heighten the risk of accidents. The site team must be rigorous in its supervision, reminding supply chain members of health and safety requirements and obligations. Accidents not only cause irreparable personal damage, but they also add further cost and time.

2. Raise flags earlier

“Don’t come to me with a problem until you have the solution.” Often good advice for those running construction projects, but right now it may not serve quite so well.

With the volatility we are experiencing now, it makes more sense to flag up potential cost and time constraints as soon as possible, with the promise of more in-depth analysis and proposed ways forward later. This should be a collective and collaborative exercise. Regular conversations with the supply chain,  encouraging them to raise earlier red flags, must feed into this process.

Funders need to understand exactly how and why prices are rising. Providing granularity and detail will make it easier for them to make their case to those above them. Generally, clients are more willing to pay additional costs if those costs are clearly understood and mapped out.

3. Collaborate on substitutions

It will be necessary to substitute certain products or systems, there is no getting around that. The challenge is that these substitutions create an additional burden of work for designers and others and they can have a ripple effect on interfaces and activities that could cause even bigger problems down the line.

It may make sense for projects to develop a protocol for managing substitutions, looking at the legal and regulatory implications, going on to study construction impacts, and then agreeing on the changes within the terms of the contract. Getting those involved around a table – albeit a virtual one – as early as possible can help reduce the time needed for reviews and approvals.

There will be bespoke elements that just cannot be substituted. In these cases, collaboration on changes to sequencing and programming can help limit impacts.

4. Contingency – with detail

One of the risks in an environment of escalating costs is that planned projects will be put on hold as funders struggle to accept a significant uplift in contingency. Rather than prescribing a blanket percentage increase to the project risk pot, it can help to dig down into the detail and add contingency only to those items which may require more time or more cost. More time and attention should be spent working out contingencies for high-risk items that are more sensitive than others.

Breaking the contingency down also allows for better risk management and planning. Perhaps equipment with a long lead time can be purchased early by the client, or some element of functionality could be lost or changed to allow generic rather than bespoke equipment to be used.

5. Contractual amendments

All parts of the supply chain should be paying close attention to new contracts right now because we are seeing a raft of amendments in these unprecedented times. One of the most obvious ones is the amount of time for which a price is valid: it could now be days, rather than weeks. More than ever, owners are contracting directly with major manufacturers, forging powerful relationships for high-demand equipment.

On the contractor side, shorter design times are leading to more uncertainty on work packages which means we are seeing an increase in the use of provisional sums.  Contract amendments reflecting the conflict in Ukraine are on the up, but careful wording is required to substantiate any claims.

Fluctuation provision clauses can be added, perhaps limited to certain materials or pieces of equipment. Or ‘cost plus’ contracts could be considered, where contractors are paid for the actual cost of materials, plant, and labour plus a fee for their overhead and profit.

In summary, these are challenging times for those procuring and delivering projects. Although it is difficult to change the culture of a project once it is underway and relationships are established, Soben’s advice would always be for all parties to be as transparent as possible. The most productive approach is almost always to expend energy on problem-solving and moving the project forward, rather than apportioning blame.