Project teams are being inundated with e-mails from executing construction companies for ongoing projects and they aren´t bringing good news: price increases of up to 20 percent for certain materials and there could be a significant reduction in available delivery volumes. Available supply quantities are being reduced and in some cases to one-quarter of the originally ordered (and required!) amount.

The trigger is well-known: the conflict with Iran has turned the Strait of Hormuz, through which about 20 percent of the world’s traded oil flows, into a geopolitical bottleneck. Oil-based building materials are becoming scarcer and more expensive. Because the production of steel, aluminium, and cement is also very energy-intensive, the entire material market is following suit. For data center construction, whose key components consist of exactly these materials, this is a turning point. We have been observing this development in our projects since the beginning of the conflict and have analysed both internally and with our clients, where the biggest levers lie to lead projects to success despite these significant challenges. Project teams should definitely implement five measures.

1) Order long lead items before it’s obvious

Chillers, transformers, generators and other critical plant equipment: Under normal conditions, delivery times currently vary anywhere between 5 to 38 months depending on the component in question. With current logistical pressures and the already high demand are increasing lead times. Steel, copper and aluminium prices are rising, leading to costs for equipment to increase. Those who only start the procurement process when the project plan dictates, it will order at a higher price and wait longer. The order of the day: Make ordering decisions for critical long lead items as early as possible, even if the planning status does not yet necessarily require it. This requires existing supplier contacts. Those who only start building them now are too late.

2) Adapt tenders to volatile markets

Fixed-price offers with a 90-day validity period are currently almost unrealistic to demand. Those who still try will either receive rejections or risk surcharges priced in, which will ultimately be more expensive than a more flexible solution. A tender structure with shorter validity periods and clearly defined indexation clauses is more sensible. The key here is to understand how general contractors currently calculate their offers, which material groups are secured with what surcharge, and where there is room for negotiation.

3) Adjust risk budgets to reality

What was observed during the war in Ukraine should serve as a warning: the prices for critical plant and equipment rose sharply then and have not normalized to this day. A similar development is realistic this time, with an even broader range of materials. Risk budgets calculated based on old experience values are not sufficient for this situation. Price increases of 10 to 20 percent in individual material groups, unscheduled delivery failures, and rising energy costs over the entire project duration must be considered financially before a contract is concluded.

4) Equip contracts with clear price escalation rules

If a construction contract lacks clauses for extraordinary price developments, conflicts between the client and general contractor quickly arise when material costs rise, with direct effects on deadlines and cooperation on the construction site. Price adjustment clauses, defined escalation processes, and a clean documentation requirement for material price changes are no longer a nice-to-have but should be considered standard today.

5) Diversify supply chains and know alternatives before you need them

Dependence on a single supplier was a structural risk even before this conflict and can seriously endanger projects today. Known alternatives are needed, and not just when the main supplier fails. 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.

The situation is unlikely to ease quickly. The structural causes disrupted transport routes, energy price inflation and volatile raw material markets, which could inconvenience the industry for some time. Projects that are set up correctly now can nevertheless be successfully completed. What this requires is no new technology or no new methodological manual. It is experience, market proximity, and a well-maintained network in the procurement markets. Built up over years, not overnight. Project managers who cannot fully provide this on their own should involve partners who have exactly that early on. Early on means: before the next email with bad news from the supplier arrives.