Keeping Cool Under Pressure: Risks in Data Center Construction

Schedule and Supply Chain Risk

The single greatest challenge facing many data center projects is the relentless pressure to accelerate delivery. Owners are pursuing speed-to-market because every day that a facility is delayed represents lost revenue and lost computing capacity. As a result, contractors often find themselves managing schedules that are more aggressive than historical benchmarks would support.

Compounding the challenge are long-lead equipment items such as transformers, switchgear, generators, cooling equipment, and servers. Delays in any of these critical components can disrupt the schedule, delay commissioning activities, and delay turnover. The scale of procurement required for data centers magnifies the exposure, particularly when global supply chain disruptions affect manufacturing or transportation.

Contractors that succeed in this environment typically focus heavily on early procurement planning, supply chain resilience, schedule validation, contingency development, and frequent coordination with suppliers throughout the project life cycle.

Workforce and Subcontractor Capacity

Data center projects demand enormous amounts of craft labor, and large projects can require thousands of workers on-site, often in markets where skilled labor is already scarce. The challenge becomes even greater when multiple data center projects are competing for the same workforce within a region.

Beyond labor availability, contractors must evaluate whether subcontractors have the operational and financial capacity to execute increasingly large-scope packages—mechanical, electrical, civil, and utility contractors are often stretched across multiple projects simultaneously. Also, a subcontractor that performs well on traditional commercial projects may struggle when confronted with the scale, pace, and complexity of a hyperscale data center program.

Strong prequalification processes, continuous monitoring of work-in-progress commitments, and realistic workforce forecasting are essential risk management practices. Contractors should also be prepared to challenge assumptions regarding labor availability and retention throughout the project duration.

Commissioning, Startup, and Phased Turnover Risk

Unlike many construction projects where the building itself is the primary deliverable, data centers are fundamentally operational facilities, and success is measured not only by substantial completion but by whether every system performs reliably under load, especially when projects are turned over in phases.

Phased turnover creates a unique exposure: Portions of the facility may be operational while other areas remain under construction. In that environment, construction activity is no longer isolated from operations. A utility interruption, water release, fire, control system failure, or even dust event in or near active construction zones can affect live data halls, disrupt service, and create operational downtime.

Commissioning, therefore, becomes one of the most critical phases of the project. Electrical distribution systems, backup generators, uninterruptible power supply (UPS) systems, cooling infrastructure, controls, and monitoring systems must all function together seamlessly. Testing must validate not only normal operations but also failure scenarios and redundancy strategies, as well as the intersection of completed areas and areas still under construction.

Failures discovered during commissioning can result in extensive rework, delayed occupancy, warranty claims, and significant financial impacts. Contractors should view commissioning as a project-wide process that begins during design and construction rather than an activity that occurs at the end of the schedule.

Power Infrastructure Challenges

Power availability is also increasingly a factor in data center development. The growth in AI and cloud computing is placing significant strain on existing electrical infrastructure, leading some projects to pursue dedicated substations, backup generation, and additional power redundancy measures.

For contractors, this creates both opportunity and risk: Electrical systems represent a substantial portion of overall project costs and often involve complex coordination among utilities, owners, designers, and specialty subcontractors. Site selection decisions related to power access can significantly influence project feasibility, schedule, and cost. Hence, contractors should engage early with utility providers and understand the dependencies between off-site infrastructure and project milestones.

Water and Mechanical System Failures

Modern data centers depend heavily on cooling systems that often include extensive piping networks, heat exchange systems, and water distribution infrastructure. While these systems are essential for maintaining operational temperatures, they also create significant exposure to property damage. A leak in a cooling system can damage expensive equipment and potentially delay operations while repairs and replacements are completed. Because many facilities use repetitive layouts, a design flaw or installation error may be replicated across multiple systems before being identified. Therefore, contractors should prioritize quality assurance, testing, and inspection programs for mechanical installations, particularly during pressure testing and commissioning activities.

Fire Risk During Construction

Fire remains one of the most severe loss drivers on major construction projects, and data centers are no exception. We have seen significant fire loss at a data center project in which welding operations ignited filters in an air-handling unit, resulting in a loss approaching $50 million.

Several factors contribute to an elevated fire risk: Fire suppression systems are often not fully operational until later phases of construction, while hot work activities continue throughout the project. Also, battery systems, temporary power installations, and commissioning activities can introduce additional hazards. Strict hot work permitting, fire watch procedures, housekeeping standards, and early activation of fire protection systems are critical controls for reducing exposure.

Design and Construction Quality Risk

Although data center structures may not be unusually complex from a structural perspective, the performance requirements for operational systems are exceptionally demanding. Foundation failures, building envelope deficiencies, improperly installed mechanical systems, and coordination gaps in delegated design elements can all have significant downstream consequences. What makes these risks particularly challenging is the repetitive nature of many data center designs; a single installation error can be duplicated dozens or even hundreds of times before it is detected. Contractors must, therefore, maintain rigorous quality assurance/quality control programs that focus on strong first-works and continuous assurance, as well as ensuring that lessons learned are rapidly communicated across the project team.

Building for Success

Data center construction represents one of the most attractive growth sectors in the industry, but it also demands a higher level of planning, coordination, and risk awareness than many traditional projects. Contractors should engage their insurer in the conversation early so the insurer can understand the project's key risks and how the builder plans to mitigate them. This is where the insurer's construction risk engineers can add real value by reviewing controls, sharing lessons learned, and helping the contractor strengthen its approach before minor issues become major losses.

Contractors and owners that focus on schedule realism, supply chain resilience, subcontractor capacity, commissioning readiness, phased turnover, and quality execution will be best positioned to succeed in this rapidly evolving market.