Data center demand is growing faster than ever, creating new opportunities daily. At the same time, mature markets are finally encountering long-anticipated headwinds.
Why does this mix of accelerating growth and complexity matter?
Because data center companies find themselves at this intersection, increasingly overwhelmed and looking for support with their Owner Furnished Contractor Installed (OFCI) model.
This is driving many data center companies to seek help from an unusual partner: their General Contractor.
In today’s post, we will explore the headwinds guiding data center companies to ask their general contractors for procurement leadership, the challenges and opportunities that creates for general contractors, and how an innovative general contractor can seize this opportunity.
The Headwinds Data Center Companies Face
Anyone with experience in a Mission Critical industry is familiar with these challenges. The difference is that the challenges have arrived together as capital costs rise.
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- Path to Power: 24 months to guaranteed power used to be consider a lifetime. Now, it is considered an impressive achievement. Lengthening and volatile paths to power are driving data center companies to look for new advantages.
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- Equipment Lead Times: Like with the path to power challenges, lead times on vital equipment like backup generators are creating demand for innovation. In many instances, a new build might wait 110 weeks, or longer, for those generators.
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- Talent: Whether it is site labor for construction and management, talent for their own team, or attrition weakening their vital partners, changes in the talent supporting the Data Center segment is putting projects at risk.
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- Real Estate: In the “good old days” of the 2010’s, land acquisition represented a rounding error for many projects. Price, access, environmental requirements, and other considerations have made real estate acquisition and development a major and expensive challenge.
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- Environmental Responsibility: From carbon emissions to sustainable power and land management to Tier 3 supply chain waste, environmental responsibility is necessary for our shared future but also creates complex changes to well-established business models.
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- Cost of Capital: Underpinning every challenge is the tectonic shift in the cost of capital, from at- and near-zero interest rates for more than a decade to current rates, this change has turned financial models upside down and created a real need to speed up every project.
With so many complex obstacles, data center companies increasingly want to shift from an OFCI model to help from the partner best equipped to understand and lead the construction of their next data center: The General Contractor.
Challenges This New Market Brings General Contractors
While every challenge brings opportunity, it is important to understand exactly what creates the difficulty before building a solution.
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- Changes in Project Volume: Data center companies want to build more projects faster as they work to capture demand and outpace the rising cost of capital, requiring general contractors to deliver perfect project after perfect project.
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- Changes in Project Scale: Data center companies who used to build 50MW sites are now requesting 100MW sites, forcing general contractors to develop a new scale of project management.
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- From OFCI to CFCI: General contractors find themselves sourcing new categories and building new relationships in mid-air, while risking lost bids because they cannot display the supply chain expertise that their clients require.
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- The Procurement Program: Building a high-performance procurement program takes at least one full build cycle, requires three to five experienced hires, costs $3 million on average, and can delay expensive projects as the team learns.
In a word, data center companies are looking for one thing: Speed.
How General Contractors Can Seize This Opportunity
Now that we have defined the challenges, we will outline the solutions available to innovative General Contractors today.
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- Lead with Flexibility: Data center companies are learning in real time that a shift to CFCI can create scaled success. During this education and adjustment process, a flexible engagement model will outperform a “one size fits all” model.
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- Focus on Outcomes: Again due to the learning process, data center companies may not be asking for exactly what they need. Whether this is speed, location, budget, or scale, it is important to fully understand the client’s long-term goals as conditions change quickly.
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- Create a World-Class Procurement Program: Disciplined, predictable, and scalable Procurement uses best practices, procedures, and tools to create flexible and reliable solutions focused on long-term value and total cost of ownership.
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- Find the Right Partners: Whether the question is real estate development, financing, procurement expertise, environmental management, or something else, finding the right partner speeds up your own expertise, helping you secure and support data center companies for decades to come.
If this changing world feels a generational business opportunity begging to be solved, there is good news.
Empirix Partners is Solely Focused on Creating the Program You Need
Empirix Partners is a Strategic Sourcing and Procurement Advisory solely dedicated to Mission Critical. As your Trusted Advisor, we build world-class Procurement programs for long-term partners who want to seize these opportunities while mitigating the risks.
Want to learn more about how we can help improve, build, or support your Procurement capabilities?
Let’s get the conversation started.
