on-prem

BCS says builders face up to 20% material hikes and patchy deliveries

The Iran conflict is adding to supply-chain disruption for datacenter construction projects, bumping up material costs and causing shortages due to the closure of the Strait of Hormuz.

So says server hall project specialist BCS Consultancy, which claims construction firms are seeing increases of up to 20 percent in the cost of certain building materials, while in some cases, the quantity available for delivery has been reduced to a quarter of the required amount on order.

The firm’s regional director Oskar Lampe says that oil-based building materials are becoming scarcer and more expensive, as about a fifth of the global supply flows through the Strait of Hormuz in the Middle East.

Because producing materials such as steel, aluminum, and cement is very energy-intensive, the construction industry is starting to feel the effects of the blockade, he claims.

“For datacenter construction, the key components of which consist of exactly these materials, this is a turning point,” he stated.

That pressure predates the current conflict, according to IDC. Andrew Buss, senior research director at the analyst house, told The Register:

“We’re hearing some reports of broader supply chain disruption and availability issues – particularly for things like high-voltage transformers and copper supply - around datacenter builds from even before the war in the Middle East and the resulting closure of the Straits of Hormuz.

“So the closing of the Straits is certainly not helping, but this has been an issue for some time resulting in more frailty and susceptibility to disruption and therefore likely to have a disproportionate impact as a result of the closure.”

Last month, IDC warned that IT equipment supplies are facing further volatility as the Iran war has strained global logistics through rising energy costs and freight routes being disrupted.

It isn’t just bit barn projects that are suffering, of course. The wider construction industry is experiencing some of the steepest cost increases in nearly 30 years as the ongoing Iran crisis drives up the price of fuel and raw materials, according to The Guardian.

These new effects come on top of existing challenges facing the datacenter construction industry, such as the availability of suitable land, getting planning permission, being able to get a grid connection for power, skills shortages and the cost of equipment.

Segro, one of the UK's major commercial property developers, revealed a while back that it would invest "hundreds of millions and more" in building new server farms, except that it faced delays often running into years getting such projects wired up to the national grid.

Lampe says that the current situation is unlikely to ease quickly, as it will take a while for disrupted transport routes, energy price inflation and volatile raw material markets to recover, even if the Strait of Hormuz were to reopen tomorrow.

He advises development teams to follow a few measures to try and minimize the impact on their project timelines, including submitting orders for long lead items early, building clear price escalation rules into contracts, and diversifying supply chains where possible.

For example, delivery times can vary between 5 and 38 months for chillers, transformers, generators and other critical plant equipment, even under normal conditions.

“Those who only start the procurement process when the project plan dictates will order at a higher price and wait longer,” he notes.

Also, dependence on a single supplier is a structural risk for builders even before this conflict and can seriously endanger projects. Known alternatives are needed.

“For several oil-based materials, technically equivalent, non-oil-based variants exist. Potentially more expensive to procure, but available and in many cases already geared towards future sustainability requirements, which makes them the more sensible choice in the medium term anyway,” Lampe says. ®