The Data Center Boom: Contractor Secrets to Navigating New Risks & Rewards

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ℹ ABOUT THIS EPISODE

Data center construction is exploding with $3 trillion in global investment by 2030. Wade and Stephen break down the massive opportunities and serious risks contractors face in this booming sector. 

From specialized labor shortages to complex insurance requirements, liquidated damages, and equipment delays, learn what you need to know before bidding on these high-stakes projects that could make or break your business.

⌚️ Key moments in this episode:

• 00:00 Why Construction Feels Different: The Data Center Boom Is Here
• 00:24 Meet the Hosts + The ‘Infrastructure Supercycle’ Numbers
• 01:38 What Makes Data Centers So Complex (Water, Power, MEP Trades)
• 04:28 Contract & Bonding Landmines: Risk Before, During, and After
• 07:08 Real-World Claims & Warranty Exposure
• 08:55 How to Manage the Risk: Teams, Communication, and Long Lead Times
• 12:21 Where the Growth Is + Power, Safety, and Community Pushback
• 15:50 Contractor Playbook: Insurance, Bonding, and a Practical Risk Checklist
• 21:32 Wrap-Up + Get the Checklist (Contact Info)

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Head to profitfirstconstruction.com/blueprint to download your free copy. 

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

Transcript

[00:00:00] 

Wade Carpenter: If you've felt like something's different in construction lately: tighter labor, longer lead times, strange power constraints, you're not imagining it. Data center spending is exploding. And it's pulling talent, materials, and infrastructure into one of the biggest capital waves we've seen in decades. Whether you're in the sector or not, it affects you. Come on in, let's talk about it.

This is the Contractor Success Forum. I'm Wade Carpenter with Carpenter & Company CPAs alongside Stephen Brown with McDaniel Whitley Bonding and Insurance.

Stephen, I know with that huge data center project in Memphis that was recently built, along with all the growth in Atlanta in this sector, we have seen it. It is something that's affecting contractors all over the country. 

Stephen Brown: It sure is, Wade. I could say we're kind of behind the eight ball on this podcast, but not really, because, you know, the demand doesn't seem to be letting up. The problem with building big data centers is there's so much risk involved before you [00:01:00] figure it out. And there's so much risk after you've figured it out. There's so much risk before the project even starts, there's so much risk in the contract you sign, there's so much risk after the job's finished. And then you're cooling off these supercomputers with massive amounts of water and electricity.

Wade Carpenter: Somebody said it was an "infrastructure investment supercycle". They're really getting into all this spending, and they're projecting up to $3 trillion in global investment by 2030.

Well, 40% or so of that, 1.2 trillion is here in the US. So it's a huge deal. As you mentioned, the mechanical, the electrical, the plumbing, all those trades have a huge impact, and we're hearing about trouble finding skilled labor in that, because these data center projects are taking up all that skilled labor. 

Stephen Brown: They sure are. When you talk about plumbing, it's not just plumbing, it's the HVAC systems, it's the cooling systems, not to mention the power [00:02:00] systems. Just the xAI supercomputer Colossus, they're calling it. Building a couple of them here in our area and one in Memphis.

They say it's gonna need a million gallons of water a day to cool it and 1.5 gigawatts of power. They say that's enough to power a million homes. So that's just to take care of these computer banks.

I of course looked up insurance claims and was studying that. Talked to some bond underwriters, they won't bond it unless you know what you're doing and it's kind of like a Catch 22. How do I learn what to do unless I learn it the hard way or learn from other people's problems or failures? Which is why we have the Contractor Success Forum, huh?

Wade Carpenter: Yeah. I know it was over six months ago when the Big Beautiful Bill came out. We talked about some of the explosion in the infrastructure and some of the tax benefits to investing in manufacturing type plants and things like that. This expansion is really [00:03:00] profoundly reshaping the construction industry.

It is got some record high demands. It can be very profitable. And as you said, there's a lot of nuances to doing this stuff. There's a lot of things to keep in mind. So I think they've been smart to pay attention to this because there's a lot of growth and a lot of potential upswing, but there's also some things that can come back to bite you, as you mentioned. 

Stephen Brown: There sure are. You remember, Wade, with Amazon and all the need for central warehousing? Tennessee has always billed itself as, the distribution capital of the United States because we have so many railroads, airline, FedEx, UPS, here, that having the warehousing was so huge here that that concrete tilt up construction warehouse stuff was just absolutely going up as fast as people could do it.

And now you're looking at the fact, well, this has to be in an area that has the power and the water and also the ability to spread [00:04:00] out. These things are a hundred thousand square feet, these big data centers, and bigger. So you need a lot of land, and they're even talking about whether they're gonna have to go vertical someday to be able to house this.

Until there's a better option it's where it's going. So much money's invested into it and there's so much money made by the players that are providing this super computing right now that it's unbelievable.

So I guess today I was kind of hoping what we could just talk about from a contractor standpoint, you were talking about some incredible numbers. What they predict the future's gonna hold in this type of construction.

So there's no doubt anybody can build modular or concrete built up buildings to serve computer systems. Install all the racks, have everything designed to run all the cables and conduit and everything involved with running all the cables.

Then you got the cooling system, where humidity's a huge factor, [00:05:00] especially here in Memphis. And you gotta deal with that. You gotta deal with temperature swings and you have to deal with cooling. You also have to deal with the water that leaks around all this electrical and high tech equipment. Water pipes and valves leak. That's the largest part of it.

Then from a contractual standpoint, you are expected to take all the risk. And also there's huge liquidated damages, because they want the project done yesterday. Maybe the project will give you a year or two years to finish it, but they want it yesterday. They can afford to pay someone who's willing to go crazy enough to promise it to them.

Of course you can imagine a lot of this stuff is bonded. Especially a contractor comes in with the price that's negotiated and the bonding company doesn't know what the other bidders are bidding. It's hard for them to know what kind of specs are involved, and figuring out, you know, unit prices, for [00:06:00] example, to complete one of these centers. So we're running into that as well.

Wade Carpenter: Yeah. A lot to unpack in what you just said, too, because I've heard all the land it requires and they're talking about turning farms into server farms, because it does take a lot of acreage and you know, it's a huge expansion.

Also, I had read how it was smart of Elon Musk to expand there in Memphis right there by the river and all that stuff. When I started looking into that I started to understand how complex these operations really are. 

Stephen Brown: Mm-hmm. 

Wade Carpenter: From your perspective, these liquidated damages, yes, they are skilled trades, number one, but number two, there's some specialized equipment that is in high demand, and I understand that there's a lot of problems getting some of this equipment. As you already mentioned, they want this yesterday. Everybody wants to put this in place before yesterday.

But if you're gonna have some kind of liquidated damages because you're waiting on equipment to arrive, [00:07:00] there's not a whole lot you can do about it if you can't get the stuff. So there's a lot of things we need to think about. 

Stephen Brown: Yeah, and the contracts you sign is everything. A lot of contractors say, look, I know how to build, I know how to build them what they want. I can build it fast and efficiently, and get all the racks installed and they can come set up their equipment, it's over for me.

But that's the problem. It's not over for them because of water leaks. Something that you're warrantying the workmanship on, electrical or electronic products, you may not be at fault, but you're still named in the lawsuit. So you get involved whether you like it or not.

It's interesting, Wade. One of the larger claims I saw recently, just a big concrete warehouse converted into data center. Everything above ground was built perfectly, but the underground waterline ruptured and messed up the foundation to the point of I think it was costing something like $14 million a day in lost [00:08:00] income. I mean, that's how big of a deal it was.

Wade Carpenter: That's huge. 

Stephen Brown: I may have my exact numbers off, but it was astronomical.

So here's a problem from renovating an existing building that you do all your pressure tests, you think you know what you're up against until you're up against it.

Wade Carpenter: From what I'm hearing, they are paying premium prices for these, to get these built quickly. So it's created a huge demand for these trays of mechanical, electrical, plumbing, you know, low voltage wiring, that kind of stuff.

And what I understand between competing for talent, I mean, maybe you don't do that work, but you are probably competing to get the same workers on your job, even if you're not in this sector.

But there is a lot of opportunity in this. I think you need to balance the reward with the risk, and that's part of what we want to talk about today. 

Stephen Brown: Sure. That's what we're all about is measuring risk. Everything from the cost of the unexpected things, to the [00:09:00] contractual things, to the things you can insure and you can't insure. That was the whole idea for the podcast.

We can never tell a contractor what they can do and don't. But the ones that do these data centers that have the processes down, and they have a huge amount of support in their own organization to deal with changes and dealing with the owner's design team, the engineers, everyone involved with pulling this off, changes that occur at the last minute.

The communication between your legal and accounting department alone, besides shipping and receiving. Not to mention the communication with your subs, has to be better than good. It has to be just flawless. You know, might say, okay, well you're exaggerating about flawless. It's certainly a goal for shooting for, but where do you wanna be short and what do you need to look out for?

Wade Carpenter: I think about some of the stuff I was reading about the lead times on some of these critical electrical components. Some of them are taking a year or 18 [00:10:00] months to get some of this stuff.

 These lead times definitely can interrupt the time to build and you may think it's just another building you're gonna slap up there in 60, 90 days. I don't know. The rising costs of getting some of these electrical components and that kind of stuff is just, you gotta take that into account in your bid and make sure you're not having problems with the project delays or whatever, or at least communicating them so that you're not on the hook for that kind of stuff. 

Stephen Brown: Absolutely. If you were a general contractor building these things, you would wanna require your HVAC, plumbing, and electrical sub astronomical limits of liability. Or at least put it in their bid to you so they can price it out to the owner, because how much exposure are you willing to take on something this complicated?

People that do the toughest electrical wiring IT stuff around there, they could say, well, Wade and Stephen, you don't know what you're talking about. We do this every day. And of course you do, [00:11:00] and we don't.

It is just that if you don't do this all the time and you're thinking about it, we want our listeners to think about what they need to do to cover their bases, to make sure they're at least thinking about some things that have happened to others.

And from what we're hearing on the street about the contractors that are doing these things and the issues they're having, labor was huge, skilled labor was huge. There's a lot of moving parts. The grading, the pipework the industrial plumbing experience that's involved, the industrial HVAC system, and the communication between your HVAC contractor and trust with them and the engineer that designed it. These all go hand in hand.

So ideally you put together a perfect team. You're bidding this job and you can't get that perfect team to work with you, or they're giving you prices that won't let you be competitive.

You see a lot of negotiation going on with these as well. And not open bid, they're just negotiated. The owner and the design [00:12:00] team picks some of the best and tries to negotiate a price between them and let them compete among themselves. So you've also got that. You wanna get on the radar for this as well.

And of course one way to always do that is to sub some of the work to someone who got the project, right? That's one way to learn.

Wade Carpenter: Yeah. And just mentioning that too, thinking about where you are in the country, there are some markets that are a lot more active in this. I was surprised to learn Atlanta in 2024, was leading the nation in these startup things.

I've heard a lot about the power requirements and it's sort of like a big buzz around here like how are we gonna generate all this power? But there's primary markets like Northern Virginia, Dallas, Chicago, Phoenix and Atlanta have been big hubs for these things.

Some of these emerging markets, a lot of them are here in the south: Charlotte, northern Louisiana, but there's also like San Antonio, some in Indiana. So they're all over the place, Ohio. But they do [00:13:00] need some kind of massive land footprint.

Even this farmland. That's what I was saying. Can they find the land, can they find the power distribution? And that is part of one of these bottlenecks that's holding this and driving this. 

Stephen Brown: Mm-hmm. That makes a lot of sense. When you think about the different sources of power for these things, Wade. They're talking about many nuclear power plants to run them as being an option. There's only so much fossil fuel can feed something like this.

I wanted to mention too about just the safety involved with a rush project like this. It goes without saying, you're dealing with a lot of moving parts and everybody's moving fast and has to be coordinated, and safety's a key issue.

You got huge power systems, huge industrial piping systems. You have a lot of heavy equipment, a lot of concrete, a lot of steel, a lot of heavy pipe, a lot of trenching, a lot of dirt work involved, there's safety considerations as well.

Wade Carpenter: Yeah. There's a lot of things, [00:14:00] like community tension. I've seen some signs around here, no data centers, posted in yards and things like that. Which it's, could be some local problems with that kind of stuff.

They can be a big boom to-- I mean I'm trying to remember where I read it. The average data center build is gonna employ like 1700 local contractors. So that is a big boom to construction.

Stephen Brown: Yeah, it is. It's almost more a boom to construction than it is for the city. There's not that many employees involved in running these things to the point where it's like an auto manufacturing plant or something comes into your city, yet it's taking a lot of resources away.

And here in Memphis, we have this aquifer right below our city in the county. It's got the purest water you've ever tried, Wade. You would love it. It was one of the most wonderful things about living in Memphis.

But a million gallons a day usage. They also have to recycle the stuff that's already cooled something down. Recycle it, recool it, regenerate it, [00:15:00] and they're building all the plants to do that as well.

So you have huge water treatment facilities. You have separate energy generation stations outside. And for the time being, TVA can support them with the kind of power they need. They have that agreement in place.

But you're using up the water. And then also you've got these big turbines that are processing everything, steam to everything else that the neighborhoods say are polluting them. So you've got the political climate.

You've also got weather. You've got floods, hurricanes, tornadoes, as always, like any project. But it's just something more to be aware of, where it's being built, and how prone you are in that particular place to that type of situation.

So if you were a contractor and you were thinking about building one of these data centers, what would you do, Wade?

Wade Carpenter: Well, number one, I would look to make sure you got some expertise, as well as talk to your bond agent and talk about the risk. I think you had a [00:16:00] big old list of risks that I didn't know if we were gonna go into-- 

Stephen Brown: We most certainly can. I'm just thinking as a layman who works with contractors, I can tell you what, I would do as an insurance agent. Not bonding so much as insurance. What can you insure and what does it cost to share that risk? And what are the companies willing to do for you?

You can get the capacity, the amount of coverage you need, but you also have to qualify for that, having all the right procedures in place to minimize there being a claim. So there's just a lot of communication involved there. It's kinda hard to lay on your agent the last second. I got a requirement that has $50 million umbrella of requirement in it. How much is that gonna cost? I gotta put it into my bid.

Wade Carpenter: Yeah. There's so many things to think about, and as I've heard around here, we are seeing some shortages in some of the labor. We always see that kind of stuff. But some of the other GCs were talking about wastewater [00:17:00] treatment, they couldn't get the people on the job because they were tied up on this other job, a few counties away.

There is a lot of opportunity here. I think our contractors need to go in with their eyes open.

Stephen Brown: I do too, Wade. Just go in with your eyes open. We put together a checklist: practical things to consider when doing this type of work.

The main thing that most insurance carriers are concerned about is this IoT sensors. What kind of monitoring are you doing as you're building the site, once the site is handed over to monitor water leakage. That's the main thing that the insurance companies are worried about right now, is there's so much water under so much pressure. Where's it gonna leak and what's it gonna damage?

When you do a bond, there's a 12 month warranty on the workmanship. Then there's a statue of repose that the owner could come against you and sue you in your state, you know, X number of years. Five years, seven years, 10 years. So you're warrantying [00:18:00] the work.

Also there was a pretty big claim with the engineer that was just in charge of dewatering and the soil engineering on a big site. That wasn't specked out right, and there was a problem with the foundation after the project was substantially complete.

When's the last time you required the owners, engineers, or designers to provide adequate coverage to protect you? They had a $10 million policy. It's like, okay, we'll just write you a check. Well, that doesn't even cover a 10th of the liquidated damages that will incur.

So the contractual language actually put that back on the owner. That was great. Except if the owner runs outta money and it has to be rebuilt, who's gonna pay for it and how? How are they gonna pay for it?

You remember the story about the school job where everything that could go wrong went wrong and all the moving parts involved with it? Yeah. That's the way I like to think of this.

So, you think about the things that could go wrong, and you break [00:19:00] it down and you compartmentalize it to every step of the process.

It seems to me, Wade, that if you're building these data centers, you've figured a lot of good stuff out about how to run a construction company. I applaud you because there's so much communication, so much work. There's so much investment into your employees and the training involved. There's so much involved with the legal aspect of taking this work on.

But we can build a rocket ship to send people into outer space and so can Elon Musk. He's not really worried about the xAI Colossus supercomputers here in Shelby County.

I was even thinking, okay, there was one guy years ago that figured out I'd build some turbines in the middle of the Mississippi River that, would turn constantly and produce energy.

And I'm like, yeah, I got it. That river's flowing all the time. Harness that baby. So anyway, he's at least close enough to the river to do that. We also have the risk of [00:20:00] tornadoes coming across a region.

Most of these things are insurable except how much can you insure something that costs you so much money that you're trying to share that risk with someone else and you can't, you know what I mean? They're making such huge profits on providing the data operations. It just boggles your mind. And trying to share that kind of risk with somebody.

You have to be aware of what the owner's trying to do to you as a contractor and what they're demanding of you. You gotta make sure your contract, before you sign, you have a really good construction attorney, preferably familiar with data center contracts and the understanding of it, and is willing to represent you and your subs. Because everything you sign are tied to your subcontractors as well.

And then there's the builder's risk insurance on the construction project while that's being built. Are you gonna bond back your subs? That'd be smart, if you were a general contractor building these [00:21:00] centers. A lot of contractors say, well, you're just kind of replicating what we do over and over and over again. It's just big, but we do it over and over again a lot.

And so when you're doing that, there's always safety issues. There's human error issues, there's boredom issues, I guess. If you had robots do nothing but build these things, maybe you wouldn't have any problems. Not that they can't be done, but I guess we're just trying to make you aware of the things you might want to consider, huh? 

Wade Carpenter: Right. Well, this has been good discussion. I mean, you said you had a checklist that maybe our-- 

Stephen Brown: Yeah, anybody can reach out to me. I'd be happy to send it to. you. It is just about the risk side of things to consider when doing this type of work. We've covered a good amount of them.

Wade Carpenter: So how could they get in touch with you to do that? 

Stephen Brown: Text me on my phone number or email me at stephen@mcwins.com. I'll be happy to send it to you. 

Wade Carpenter: Great. 

Stephen Brown: And that's S-T-E-P-H-E-N@mcwins.com. M-C-W-I-N-S dot com. 

Wade Carpenter: Great. Alright, well again, good [00:22:00] discussion. I appreciate it. Hopefully our listeners got a lot out of it. There is definitely some opportunity out there for you, but you also have to weigh the rewards with the risks that goes along with it.

Thank you for joining us today. We do this every single week. We appreciate it if you'd like, share, or subscribe, it always helps the channel out, and we will see you on the next show.