Monday , 1 May 2017


“Turnkey” versus “Design and Build”: Advantages and Disadvantages When it comes to a new Data Center which way to go?

FOTO JUAN CARLOS LONDOÑOBy: Juan Carlos Londoño Z. – INGENIUM

imagesWhen planning a new data center project, the most important decision is who we are making responsible for such an important project. What is better? A turnkey project, same contractor designing and building the data center or hiring an independent consultant for the design, and a contractor to build it. 

Both methods have their advantages and disadvantages.

The turnkey option has been used for a long time, mainly in building civil infrastructure projects, or with public and governmental bids, or when the project has a high level of complexity and there is a well-defined scope on behalf of the owner.  But in recent years it has been used indiscriminately in contractual processes of IT projects, including data centers, regardless of size, complexity and scope.

On the other hand, a “design and build” project  seeks to separate the design from the construction and implementation process. By previously creating a design – this may be conceptual or detailed engineering drawings-, the preliminary studies and technical specifications are tailored to the requirements of the project and of the customer, so that bidders interested in building will have enough information and adequate specs to prepare their proposals accordingly, minimizing or eliminating assumptions that are required in order to develop this turnkey project.

Both of these options are valid, however, there are some advantages and disadvantages on both options. While there may be more, we present some of them for illustration purposes:

The advantages of a turnkey project, some of which are misguiding and the opposite ends up happening:

  1. Reduced total time during the contractual process by having just one process instead of two separate ones. This does not necessarily imply less construction time.
  2. A seemingly “lower cost” when integrating “all” the elements under one provider.
  3. Minimizing orders of change (those of which generate more costs against the contractor) during the implementation of the project because the changes and adjustments fall under responsibility of the only contractor.
  4. This is a practical solution for smaller projects, such as communications rooms or small computer rooms, these usually have a limited budget for the project.
  5. Definitely, the main advantage of this service is the peace of mind the owner gets when it hands over full responsibility of the project to “only one contractor”, it is much easier for the owner to manage and communicate with one provider, which means “one neck to choke”.

The greater responsibility assumed by the only supplier, ironically is what causes most of the disadvantages in this contractual model:

  1. A higher cost is assumed due to the higher risk that comes with total responsibility, there is less information to prepare proposals (compared to the “Design and Construction” scheme) and therefore bidders assume more risks. The typical way to counter the increased risk is by increasing the price.
  2. There is a greater disparity when comparing offers, both economically, because each provider has different criteria for assessing the risk, as technically, because of the different assumptions and varied criteria when presenting solutions.
  3. Usually designs are oversized due to lack of information available at the time when the offer is being prepared, several tolerance factors are taken into consideration when referring to the capacity of the equipment and are factored into the assumed risks, causing higher dimensions, because of this higher prices in the equipment are presented in the offer.
  4. Despite the previous bullet, after winning the contract, these suppliers look for ways to save during the implementation (taking the savings for themselves and not for the owner, because the price has already been established), having detailed designs below defined standards and/or adding low quality materials or equipment at accepted technical specifications. In this case, it becomes vital to have a commissioning process by a qualified third party commissioning firm- knowledgeable and completely independent from the contractor-, to minimize and eliminate this eventual disadvantage.
  5. Competition is restricted because typically only “the biggest competitors” are the ones that are able to assume the highest risks and the full responsibility of the project which implies, in general, the highest bidding offer (the biggest companies usually require bigger margins).

Finally, when assigning full responsibility of the project, the owner gives up all rights to interfere and control the project, and things such as topology, specs, scalability etc. as well as the materials and equipment that needs to be employed.

On the other hand, assuming that the company that designs does not have any conflicting interests in the implementation phase and expecting it to be really independent from the construction companies, the advantages of this “Design and construction” scheme, are as follows:

  1. The disparity of the construction proposals is notably reduced. This is due to the studies and designs previously made, the amount of information available helps limiting risks, the scopes, specs and even the equipment needed is much more precise. In other words, construction offers can be better mapped out to the necessities and scope needed for the project, setting a clearer picture of the project itself.
  2. This simplifies the vendor decision process for the construction, having homogenous proposals which facilitates the “apples to apples” comparison and making the negotiation process a lot faster.
  3. A cost reduction for the owner, due to the fact that oversizing is eliminated from the solution and the risks of the turnkey scheme are reduced, optimizing the construction and implantation process of the data center. Allows better control and interference

by the owner regarding the technology, materials and equipment to be implemented, and there is more knowledge gained on the capacities and scope of the physical infrastructure. In this case, the savings go to the owner and not for the contractor.

Still, there are some disadvantages with this method:

  1. Longer decision process, although once again this does not necessarily means a greater time to execute the project.
  2. More quantity of changes during the execution, due to the fact the contractor may want to add or change specifications or equipment’s and materials, and they need to be managed and approved to avoid extra costs to the project, making claims that may not be within the scope that was originally defined or arguably attributing errors to the design.
  3. Finger pointing between the consulting engineer that designed the project and the contractor, in gray areas inside the scope of the project and the respective responsibilities of the designer and contractor. The diluted responsibility may cause extra charges and delays in the execution of the project.

There is no such thing as a perfect recipe to design and build a data center, every company and team assigned to each project will have different standards on what is more important for them and the project. For example, complying with the budget, the time to market or have the best data center, no matter the cost or what it takes.  On the contrary, it is fundamental for the people responsible of data center projects to measure well the advantages and disadvantages of both options, to decide which method is more convenient in accordance to the interests and intentions of the company and the scope of the specific project.

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