Procurement of Construction Services for Data Centers
Risk Management
November 2018

Procurement of Construction Services for Data Centers

Risk Management

For many data center investors, their Finnish data center is the first contact with Finland as a business environment. Many things work a little different here. It is a question of good management not to let these little differences turn into actual business risks. In this article, we look into a few aspects.

Contract models and their impact on availability of services

Depending on whether you choose to procure the complete data center construction work as a turn-key contract, or whether you manage the project yourself, your company will have to enter into one or many construction delivery agreements. You will have seen and used such agreements before. Strictly speaking, there is nothing (legally speaking) that would prevent you from using the same contracts in your project in Finland.

However, you have to adjust yourself to the local practices if you want to have a range of reasonable bids from reliable suppliers to choose from when awarding your contracts. As far as Finnish suppliers are concerned, they are accustomed to certain contractual standards. They will base their price calculations on their experience with these standards.

For each deviation from the normal, your potential contractors will make (usually disproportional) risk mark-ups on their bid. If the contract to be awarded looks too strange, many reliable bidders will be scared away altogether, and you will be left with the suppliers most prepared to take risks. Which may be a risk for you.

Risk allocation and cost control

In a large-scale construction project, the damages resulting from malperformance and delay generally exceed what can be expected to be collected from the malperforming supplier (often a small service provider low in the contract chain). Prudent risk management and damage avoidance should be built into the contract chain.

Typical risk factors can be further controlled by an active project management, with appropriate legal or factual action being taken as quickly as possible when problems emerge.

Finnish law is quite generous when it comes to awarding additional compensation for work suppliers for work that is alleged to be outside of the scope of a fixed price contract. Usually, the chain of events leading to such awards involves some sort of communication or miscommunication between lower-level employees on both sides acting at the work site.

Effective cost control in Finland requires active cost management in all phases: stringent contract agreements; supervision at the site; clear communication of responsibilities to the contract partner; resolute intervention in unclear situations. Early and continuous procurement of legal advice will go a long way towards securing your interest in the long run.