Data center planning and construction risks

Data center construction risks start before you break ground. Planning can significantly influence the project’s risk profile.

The pace of data center development is picking up, driving data center owners and developers to accelerate timelines to keep up with demand. Developers, investors, and operators are often under pressure to secure sites, lock in power, move through financing, and deliver faster than standard construction insurance programs were built to absorb.

These decisions, many of which are made before ground has been broken, can materially define the project’s risk profile for years to come. Hard-to-reverse agreements may lead to substantial financial exposures even before their risk implications are fully understood.

Addressing these risks effectively can require a clear understanding of where exposure is building and a practical strategy to address it before those decisions are locked in. Marsh’s data center specialists can help you better understand the risks shaping your project before construction begins and throughout the build-out. Fill out the form below to learn more.

It all starts with site selection

Site selection can be one of the most consequential risk decisions in a data center’s lifecycle.

Having access to sufficient power does not always mean that you have found the right site for a data center. The ideal site is usually one that is insurable, is attractive for lenders and investors, can be accessed by construction teams, and is viable for long-term operations.

A site can look attractive on paper and still carry hidden costs, be prone to delays, or have insurability issues. In a fast-moving market, that is easy to miss until the project is already committed and sometimes underway.

That is why data center site selection should be approached as an early risk and diligence exercise, not just a land search.

Marsh’s team of data center specialists can help you take a risk-informed lens to site selection before decisions are locked in. That includes analysis around natural catastrophe, power, infrastructure, contractual considerations, and the broader practical question of whether the site supports the project you are building.

Compressed timelines can lead to new risks

The market is moving faster than ever before. AI demand and competition for capacity are compressing construction schedules across the sector. Projects are being pushed to move faster through procurement, energization, contracting, and delivery.

This unprecedented speed can create exposure in multiple areas, including pressure to procure long-lead equipment, challenges to secure the needed skilled workforce, and less tolerance for delays once revenue, financing, and customer obligations are in place.

For investors, developers, and operators, a challenge often lies in determining whether their insurance program actually matches the speed being promised to lenders, counterparties, and future tenants and will respond to losses.

What drives construction cost and timeline risk

During the construction process of a data center, risks are often driven by a number of recurring pressures, which can include:

Scope and density changes. Evolving workload assumptions, cooling requirements, and power needs can change the project after early decisions are already made.
Procurement and equipment lead times. Delays in key components can shift completion dates and potentially lead to contract breaches.
Labor availability. Skilled mission-critical labor may be in short supply, particularly in markets where multiple large projects are competing for the same workforce.
Contractor capacity and performance. Availability of experienced contractors is not uniform across geographies.
Power timing. Developers may be able to build on one timeline, while utility and interconnection realities move on another.

These issues can shape a data center’s risk profile well before it can welcome tenants, with delays potentially leading to financial consequences.

Insurability and financing now start earlier

Considering the costs involved, lenders and investors are requesting increased visibility into how a site is expected to perform under stress. Because of this, due diligence, valuation, and loss analysis are becoming more important — and often requested before construction is fully underway.

To be better positioned to answer questions, owners and developers can conduct a probable maximum loss (PML) analysis, which provides a defensible estimate of the largest reasonably foreseeable loss under defined scenarios. That figure can help clarify the scale of exposures and support more informed decisions around insurance limits, financing, and capital planning.

This data can help you right-size insurance coverage and strengthen discussions with lenders and investors who can be more confident that their capital investment is adequately protected.

Read more about PML studies and other cost-containment strategies.

Understanding builder’s risk and delay in startup coverage

Certain exposures can have an outsized impact on a project during construction. Physical damage that impacts materials, equipment, or the entire site can lead to significant financial losses. It can also delay completion times. And with tight delivery schedules, these delays can become even more expensive than the repairs themselves, potentially leading to breaches of customer commitments and loss of revenue.

Builder’s risk insurance and delay in startup (DSU) coverage can address these exposures. While builder’s risk is focused on the physical damage itself, DSU is geared to address the financial consequences of the delay that follows.

Builder’s risk insurance is designed to cover physical loss or damage to a project while it is under construction, subject to policy terms. This can include damage affecting insured construction works, materials, or related project assets during the build phase.

Delay in startup (DSU) insurance is intended to address the financial loss that can result when physical damage from an insured event delays completion and pushes back the start of revenue generation.

Due to their potentially critical role in protecting a data center construction project, it is best to start discussions to design builder’s risk and DSU programs that reflect the project’s real exposures early on. These early discussions can enable the design of insurance solutions that reflect the scale of the asset, the expected construction timelines, and obligations that could be impacted in the case of delays.

Marsh’s Nimbus goes a step further, intending to provide lifecycle-spanning construction protection that follows the asset from construction to operations.

Contract structure decides who holds risk

Contracts often determine how risk is allocated across a project. But if they are entered into without a clear understanding of the underlying exposures and their potential impact, they can create significant financial and operational consequences.

Power purchase agreements, service-level agreements, construction contracts, and related project documents often lock in delivery dates, performance standards, and liability assumptions early. If those obligations are not aligned across the project, owners and developers can end up carrying more risk than expected.

Frequent contract challenges include:

Delivery obligations that are tighter than is realistic
Delay exposures that are not passed down effectively
Performance risks that sit with the wrong party
Contract language that does not align with what is insurable
Obligations that become expensive to unwind once the project is moving

When it comes to contracts, the structure set now can influence the project for years. Marsh’s contracts advisory specialists may be able to help you streamline that structure early, before misalignment becomes embedded in the build and evolves into financing challenges.

Capital tools to keep the build moving

In a compressed market, insurance, capital availability, and project delivery can be closely connected. Several tools may help preserve flexibility through the build:

Marsh’s lifecycle-spanning construction protection is designed to follow the asset from build to operations.

Credit solutions may help support contractual obligations with utilities and power providers and reduce balance sheet strain.

Surety can help preserve liquidity by supporting certain obligations without tying up as much capital in traditional collateral structures.

Premium financing can spread large insurance payments over time, in an effort to help to align insurance spend with project cash flow.

These tools may help protect the project while freeing up capital for other essential investments throughout the construction process.

FAQs

The main risks often include site selection, natural catastrophe exposure, power availability and delivery timelines, procurement delays, labor shortages, contractor dependencies, and contract misalignment. Considering the potential extent of losses, it is important to design an insurance program that provides adequate coverage.

Site selection can affect insurability, financing, construction timing, resilience, and long-term operating viability. A site may carry material risk if catastrophe, labor, zoning, or infrastructure issues are not identified early and factored into the final selection decision.

A PML analysis estimates the largest reasonably foreseeable loss under defined scenarios. A PML analysis can give a more defensible view of likely loss exposure and can support builder’s risk and DSU decisions during diligence and financing discussions. This information can influence how lenders and investors view the project’s risk.

Organizations often use tools such as surety bonds, premium financing, and credit solutions to preserve liquidity while still meeting insurance and contractual requirements.

Builder’s risk insurance is designed to cover physical loss or damage to the project during construction, subject to policy terms and structure.

Delay in startup (DSU) insurance can address financial losses when physical damage caused by an insured event delays project completion and postpones the start of revenue generation.

Nimbus is Marsh’s lifecycle-spanning construction solution for data center projects, designed to help support coverage from planning and construction through completion, handover, and transition to operations. It is intended to provide construction “all risks” and delay in start-up (DSU) insurance throughout the entire construction phase. It can also offers property damage (PD) and business interruption (BI) coverage for handed-over data centers until final practical completion.

Early decisions on site, design, contracts, and financing can shape the project’s risk profile for its full life and are often difficult or expensive to reverse later. Early conversations with your broker or insurance advisor can help you better understand which risks are transferable.

Man checks server racks in data center during work hours

Report

Data center decommissioning and retooling risks

08/28/2026

Man works with tablet inside data center

Article

The power equation: What the digital infrastructure boom means for utilities and IPPs

07/13/2026

Data Center Computer Racks In Network Security Server Room. Cryptocurrency Mining Farm or Hosting Storage Connected Dots Programming Code And Binary Concept.

Article

The market has appetite. The question is how much capacity is there?

07/13/2026

Data flow and network connections in digital space

Podcast

Risk in Context Podcast: Leveraging site selection as a strategic data center success driver

06/23/2026

Download the report

Unlocking the Digital Infrastructure Opportunity

Digital infrastructure powers today’s economy and tomorrow’s innovations—but with rapid growth comes accelerated risks. Marsh’s digital infrastructure risk report outlines core risk management tools that stakeholders can leverage which may help better manage risk across the digital infrastructure lifecycle.

Our report includes:

Comprehensive insights across the digital infrastructure ecosystem, offering an end-to-end perspective on risk
Novel risk management solutions that enable you to free up your capital
Resilience- building strategies to support long-term success
Core tools to help protect your investments and enable growth across every phase of the digital infrastructure lifecycle

Fill out the form to download your copy of the report.

Data center planning and construction risks

Data center construction risks start before you break ground. Planning can significantly influence the project’s risk profile.

It all starts with site selection

Compressed timelines can lead to new risks

What drives construction cost and timeline risk

Insurability and financing now start earlier

Build a more resilient data center risk strategy

Understanding builder’s risk and delay in startup coverage

Contract structure decides who holds risk

Capital tools to keep the build moving

Nimbus

Power purchase agreement credit risk mitigation

Surety bonds

Premium financing

FAQs

What are the main risks when planning and building a data center?

How does site selection affect data center risk?

How do insurability and a probable maximum loss (PML) analysis affect financing?

How do I keep capital available through the build?

What is builder’s risk insurance for a data center?

What is delay in startup insurance?

What does Nimbus cover?

Why does insurability need to be considered before construction starts?