Strategic Data Center
Procurement
Kirk A. Killian
Corporate America
Needs New
Data Centers
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88% of Mid-market Companies (< $500 million revenues) plan
to acquire/build or expand data centers in the next 4 years.
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91% of Mid-market Companies expect equal or greater annual
expenditures next year than last year for data center facilities.
• Most corporate IT departments will procure (build or buy/lease)
additional data center capacity in the next few years.
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Demand Drivers
for Additional
Data Center Capacity
46% - Consolidate infrastructure (shrink # of facilities)
41% - Replace aging facilities
38% - Support organic growth
31% - Expand geographic coverage
29% - Improve business continuity
25% - Improve energy efficiency
21% - Change sourcing models (colocation, cloud, etc.)
16% - Reduce operating costs
• Needs vary by organization; many companies have multiple
reasons for needing new data centers.
• Cost reduction is always important, but is not usually the most
significant factor.
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Importance to
IT Procurement
Professionals
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Cross-functional team (procurement, IT, facilities, legal, CFO)
• Cross-Organizational Visibility
Expensive projects (often $20 - $250 million)
• Upper Management Scrutiny
Infrequent purchases (once every few years vs. many
purchases every year for hardware & software)
• Process Unfamiliarity
This session will inform the IT Procurement Pro about this
niche, and help you strategically provide value to your
organization, avoiding expensive, high-visibility missteps.
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Overview –
Data Center Delivery
Models
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Design, Build & Self-Operate (traditional corporate model)
• Company builds its own non-shared data center and operates it
for many years. All hardware and software is owned.
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Colocation Suite
• Company leases a non-shared private suite within a large colo
data center. All hardware and software is owned.
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Cloud
• Company gets use of specific hardware/software owned by the
provider. Location and operations practices determined by
provider. Hardware (maybe software) owned by cloud provider.
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Brief Discussion
On Cloud
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Cloud delivery model not discussed in depth in this session
• Rapidly growing sector – many companies are moving part of
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their computing to the cloud, especially test/dev, storage, backup,
and special projects with extreme scaling or short durations
Can be economical, flexible, rapidly deployed
Control measures less defined than in corporate data centers
Can present control, reliability, audit and security issues
(reliability varies widely by provider, location and service level)
Embraced warmly by internet/emerging industries; cautiously by
heavily regulated industries (finance, healthcare, insurance)
Incorporating cloud into the overall mix is a powerful tool for
adding flexibility and controlling costs
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Overview – Traditional
Delivery Model: Design,
Build & Self-Operate
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Company designs a data center facility, builds it, and selfoperates it
Design can start with raw land or “shell building” suitable for
data center operations
Design Decisions: Tier Rating, Electrical Density, Raised
Flooring, Modular
Tier Rating (reliability) and Electrical Density are biggest
variables affecting construction cost
• Owner/operator company maintains maximum control over its
investment level, operating costs, and facility management
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Construction Costs
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Data center facilities are very expensive
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Large companies commonly spend $10 million on land and
>=$100 million on buildings and critical systems (plus
hardware/software) with future phases costing even more
• $5-30 million is more common for mid-sized Fortune 1000
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Data center developers can construct “turnkey” build-to-suit
data centers pursuant to a long-term lease, converting a
CapEx spend to a long-term lease of building
• To maximize negotiations leverage, keep multiple locations,
developers and delivery paths open for consideration
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Example Budget:
Building a Ground-Up
Data Center
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Example: (1) 10,000 SF data hall w/ 1,200 kW, expandable
into (2) 10,000 SF halls with 1,200 – 2,400 kW each
Land
Building/Site Work
Critical Systems
Design/Fees
Contingencies (~10%)
Total (approx.)
$ 2,100,000 (8 acres at ~ $6.00/SF)
$ 4,500,000 (60,000 SF at $75/SF)
$10,800,000 (1,200 kW @ $9,000/kW)
$ 800,000
$ 1,800,000
$20,000,000 = $16,667/kW (first 1.2 mW)
• Above example design allows physical expansion of raised floor
area within building, and separately, increase in power/cooling
density within both data center phases = Future Flexibility
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Design/Build Timeline –
New Construction
Takes a Long Time!
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Example schedule below doesn’t include internal scoping &
approvals (inherently political), which can add months/years!
6 months
3 Months
6 months
9 Months
3 Months
27 Months
Site Selection/Approvals
Site/Building Acquisition
Design & Permitting
Construction
Commissioning & Move-In
Total – Start to Finish
• Converting an existing building to data center use can usually
save 3-9 months
• Really agile companies can compress and overlap tasks to
complete new project in 18 months, but that is rare
• Most common source of delays is getting internal approvals!
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Facility Reliability
& Tier Ratings
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The Uptime Institute has established the most widely used
data center reliability rating system, with (4) tier levels:
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Most corporate and colo data centers built since 2005 are Tier 3
Most 10-20 year old corporate data centers are Tier 2
Most small data centers within office buildings are Tier 1
Higher Tier levels cost more to construct and operate
Few data centers get formal TUI certification, but are instead
designed in “substantial compliance” w/ TUI guidelines
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Electrical Density/
Physical
Expandability
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Most corporate IT departments are deploying computing
equipment at 100 – 150 watts/SF (some much higher)
Most 1990’s era data centers provide +/- 75 watts/SF
Most new data centers designed to deliver 150 – 300
watts/SF, including colocation facilities
• “Value engineer” new design/build to initially deliver 150-175
watts/SF (or current needs + 20%), then add more power later
• Design new data center to allow physical addition of future
additional data halls within the original building structure
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New Trend –
Modular Data Center
Construction
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Data Center “Modular Kits” have factory-built major
components, shipped to site and inter-connected
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Less customization (standard sizes and configurations)
10-15% lower upfront costs
Higher initial reliability (in theory: factory built vs. site assembled)
Faster timeline – can reduce schedule by 6-12 months if no
customization desired
• Long-term reliability and expandability TBD
• Vendor-specific reliance risks TBD
• Modular components can be a great solution to construct a new
data center quickly within a building you already own!
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Geography in
New Data Center
Site Selection
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Preference by many in IT to locations near existing data
centers or operations staff (“server huggers”)
For “active/active” data center pairs, proximity to existing data
centers important for telecom latency (<= 40 miles apart)
Lower construction costs in rural and southern/midwestern
metros; research resource is Means Construction Cost Index
Cold, dry climates maximize potential for “free cooling”,
reducing electricity load by 10-20%.
Lower electricity costs in south/midwest, higher in northeast
and California; “hydro” utilities are lowest
Green “fuel mix” important to some companies
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Avoidance of
Hazards/Risks
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Avoid sites that are:
• <= 12 miles to paired “active/active” data center
• <= 100’ to nearby roads
• In seismically active areas (UBC zones 3 & 4)
• Within 100-year and 500-year flood zones
• < .5 mile to freight railroad ROW or HazMat or explosive
storage/production facilities
• < .25 mile to major interstate highway
• <= 2 miles to commercial airport & flight paths
Note: These are guidelines only; many data centers are near
airports, railroads and highways, and in seismic zone 4 (California)
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Economic
Incentives
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Available in many forms for new data center projects:
• Property Tax Abatements (real and personal property taxes)
• Sales Tax Waivers (for building systems and computers)
• Utility Enhancements (e.g. redundant feeders)
• Utility Tariff Subsidies (typically 1-5 year rate discounts)
• Cash Grants (difficult to get)
• Job Grants & Training Programs (small, but easy to get)
• Expedited Permitting (accelerates construction)
• Free/Discounted Land Sites
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Strategically negotiate incentives; amounts can be millions!
Keep multiple locations in consideration to maximize value
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Site Infrastructure
Issues
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Desirable site attributes include:
• Electricity from redundant sources (2 feeders, preferably from 2
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substations)
Power availability at medium voltage (12,470v – 50,000v), which
is better than 480v
Multiple redundant fiber optic networks nearby
Dark fiber optic network nearby
Light Industrial zoning to allow diesel backup generators
>= .25 mile to residential neighborhoods, where homeowners can
protest and delay data center development
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Data Center Build-Out
in Existing Buildings
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Seek buildings with:
• >= 16’ clear height
• >= 100 pounds/SF floor loading capacity
• Concrete panel or concrete block exterior construction
• Single-story building preferable
• No hazardous co-tenants (single-tenant buildings preferable)
• No co-tenants above data center (water penetration risk)
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Suggest phased build-out (multiple “data halls” within building)
to conserve capital and reduce operating costs
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Summary: Design,
Build & Self-Operated
Data Centers
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Advantages
• Lower operating costs if long-term needs predictable & stable
• Maximum control over operations, audits & reporting (“It’s Yours
– Operate It How You Want”)
• Incentives offset some upfront costs
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Disadvantages
• Slow to construct & deploy
• Expensive to build (large CapEx investment)
• Inflexible specifications/quantities (“You Built It – Live With It”)
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“Top 10 List”:
Procuring SelfOperated Data Centers
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Adding Value as an IT Procurement Pro
1.
Allow ample project time; start planning 3-5 years before new data
center must be operational. If less time is available, you may need to
construct in an existing building or procure colo.
Carefully define facility needs: space, power, reliability, and design
preferences. Force users to forecast growth to avoid overbuilding or
under-expandability. Resist “Taj Mahal” criteria.
Create an effective multi-disciplined project team (IT, engineering,
real estate, legal). If needed to supplement in-house knowledge, hire
expert consultants (architects, engineers, site selectors, incentives
advisors, legal counsel).
Select location wisely to reduce utility costs, improve telecom
connectivity and reduce business continuity risks.
2.
3.
4.
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“Top 10 List”:
Procuring SelfOperated Data Centers
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Challenge “server hugger” mentality that dictates new data center
location must be near existing facilities.
Suggest phased build-out allowing future expansion phases as space
needs dictate.
Suggest phased power increases; similar to space phasing
methodology in #6 above.
Investigate and procure economic incentives, often overlooked by IT
departments - can be worth millions!
Evaluate modular “plug-in” data center systems components, and
suggest multi-vendor component consideration.
Explore developer sale/leasebacks to shift CapEx expenditures to
OpEx rent if desired by corporate finance.
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2nd Delivery
Model:
Colocation
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In data center Colocation, a third party provider constructs and
operates a data center (similar in design to corporate data
centers), leasing private suites to corporate IT departments similar to an office building with different tenants
• In the colo model, the corporate IT department owns its hardware
and software, but places it within a private suite or cage, which is
inside the larger colo data center building
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Modern Colo:
Dedicated
Infrastructure
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Trend: “Private Suite” colocation = less infrastructure sharing
• Key feature for corporate customers - suites unlikely to share
PDUs, CRACs, UPS (“data center within a data center building”)
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Example: Colo suite provides 1,200 kW to (1) customer
• PDUs and CRACs non-shared within suite
• N+1 UPS modules (3 x 750 kVa) non-shared serving this suite
• Primary switchgear, generators, chillers not shared
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Key Colo Terminology
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Provider – the company operating the colocation facility
Suite – the premises occupied solely by one customer, often with hard walls
and non-shared infrastructure components
Cage – same space concept as “Suite”, but smaller and less likely to have
non-shared CRACs and UPS modules
Critical Load – the IT equipment load, typically backed up by UPS and
generators
Carrier Neutral – customer selects whichever 3rd party telecom carriers it
chooses to serve its suite; offers cost advantage.
Managed Services – available from colo provider in addition to the basics of
space, power and telecom circuits; may include server re-boots, rack and
stack, server builds, tape changes, tape shipping, SAN/NAS usage, firewall,
load balancing, intrusion detection, and “cloud”. Managed services leverages
the colo provider’s staff for users too small for local FTEs.
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Telecom Options
in Colo Facilities
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Key competitive advantage of many colocation facilities is
carrier selection and carrier neutrality
• Colo may provide access to 6-30 telecom carriers’ networks,
offering wide choice of carriers, services and pricing
• Circuit installations are relatively fast (+/- 60 days) and cheap –
they’re already in the colo’s “meet-me” room!
• Most colos (except those operated by telecom companies) are
“carrier neutral”; each customer can choose its carriers
• Select a colocation facility with at least one dark fiber option
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Carrier variety creates negotiating leverage; savings and
contract flexibility can be huge for IT Procurement Pros!
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Colo Industry
Development:
1998 to Present
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Industry founded in 1998; early pioneers were startups, and
many crashed with “dot-com” bust. Huge growth since 2005.
Newer facilities have high reliability - mostly TUI Tier 3
High electrical densities, mostly 125 – 250 watts/SF
Experienced, sophisticated providers, SSAE16 audits, PCI
compliance, and professional operations/reporting
Financially stable providers, many now publicly-traded
Occupancy costs have decreased steadily since 2007
More dedicated (non-shared) infrastructure now
• Greater acceptance by Fortune 1000 IT departments!
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Colocation
Geographic
Availability
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While colocation is available in all major cities, the largest
clusters are in (10) U.S. metro areas:
• San Jose, Washington, NY/NJ, Dallas, Chicago (the “Big 5”),
plus Los Angeles, Boston, Atlanta, Phoenix, and Seattle
• Emerging market leaders are Austin, Las Vegas, Houston,
Portland, Minneapolis, Denver and Miami
• Providers include telecom companies, colo specialists, and
publicly-traded Real Estate Investment Trusts (REITs)
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Colo provider variety creates negotiating leverage; savings and
contract flexibility in most competitive markets is significant!
Keep multiple markets under consideration, and include at least one
“discount” provider in selection process
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International
Colocation
Procurement
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Many US companies procure colo space internationally to
support local or regional IT initiatives
• The largest international “money center” cities offer a variety of
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modern colocation data centers
Telecom latency and taxation issues can significantly affect the
location decision (e.g. Dublin popular for tax reasons)
International data ownership and data privacy laws (e.g. China)
also affect the data center location decision.
Data center space/power tends to be 10-40% more expensive
overseas than in the US; London is particularly pricey
A “last resort” colo option in most countries is the local phone
company; usually very expensive and inflexible
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Colocation
Pricing Models
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The most common colo pricing models are:
• Wholesale:
Rent in $/kW of Capacity + Metered Power;
typically for critical loads >= 150 kW. Metered power includes
“uplift” of ~ 60% for cooling loads.
• Retail:
Cost/SF + Electrical Circuits; typically for critical loads
below 150 kW.
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Retail colo placements can be effective for small corporate
deployments (2-10 cabinets) or those in remote locations
Wholesale colo pricing models tend to be ~ 30% cheaper than
Retail, and customized for corporate IT customers
Seek “Wholesale” pricing even if quantity is “Retail”
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Example Colocation
Pricing
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Example: 4,000 SF data center suite with 500 kW of critical
power (125 watts/SF) for (125) 42u IT equipment cabinets
• Typical wholesale pricing is $150/kW/month for the installed
critical power capacity (including raised floor space), plus a
separate charge for the electricity consumed (kW hours x
$.06/kWh), including a 60% cooling uplift factor.
$75,000
$34,560
$109,560
Rent/month (500 kW x $150/kW)
Metered Electricity (500 kW x 720 hours/month
x $.06/kWh x 1.60 “cooling uplift factor”)
Occupancy costs (monthly for 5 years)
• In a “lease vs. buy” analysis, the $900,000 example annual rent
($75,000/month x 5 years) compares to a ~ $12 million
construction cost to build a data center of similar capacity
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Service Level
Agreements
(SLA)
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Colo operators provide an SLA stipulating downtime allowed
before financial compensation is provided to the customer
Colo SLAs are skimpy; one day’s fees credit for each
downtime event. No customer wants downtime triggering SLA
credits (downtime risks/costs exceed the compensation)
One of the most powerful incentives toward proper facility
maintenance is the provider’s reputation, and uptime
performance is generally excellent at new colo facilities
• Negotiate early termination options (plus financial credits) for
repeated/extended events of downtime
• Negotiate that any downtime event of any duration triggers a
credit, not only events that exceed a minimum duration
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“Chemistry”
With Colo Provider
Is Important
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Procuring a colo data center involves a continuous cycle of
requests from both parties; getting along well with the provider
is key to a successful long-term relationship
Invest time during the selection process to insure that your IT
team communicates well with the vendor’s team, in addition to
verifying competency from the vendor’s staff
Some companies want a formal, all business approach; others
appreciate a looser “silicon valley” vendor style
It’s a painfully long contract term if either party doesn’t like
doing business with the other side
• Check customer references from finalist providers to learn
contract terms existing customers wish they had obtained
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Colocation
Compared To
Self-Operated
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Fast Deployment.
Users can build-out and occupy colo
suites/cages in months instead of years.
Low CapEx Costs.
Colo users only pay upfront for physical
construction of the suite/cage plus electrical and network distribution.
Higher Occupancy Costs.
Compared to owned data centers,
colo occupancy cost (rent) tends to be a little higher.
Flexible Contracts.
Colo contracts offer expansion options for
“Pay As You Grow”, and short lease terms.
Managed Services Options.
At most colos, managed services
are optional and ala carte, and less expensive than hiring FTEs.
Less Operational Control.
Colo customers have less control
over critical systems operations, audits, security, and reporting.
Lower Staffing Requirement.
The colo provides all facility and
critical systems maintenance.
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Colo Procurement
Process/RFPs
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Colo procurement is similar to other IT procurement: Project
Scoping, Vendor Candidate Selection, RFPs, Facility Tours,
Proposal Analysis, Negotiations, and Contract Review.
RFPs should be sufficiently detailed to state the need, solution
criteria, contract term, and preferred pricing models.
Use a “short form” RFP (6-8 pages) for small cages and a
standard RFP (20-25 pages) for larger colo suites.
Most IT Procurement Pros distribute 4-8 colo RFPs.
• RFPs should request flexibility in contract term, early termination,
expansion/contraction of scope, and ala carte managed services.
• To create negotiating leverage, send an RFP to at least one
vendor in the most competitive geographic market under
consideration, and at least one “competitively priced” vendor.
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Baker’s Dozen: (13)
Recommendations
for Procuring Colo

Adding Value as an IT Procurement Pro
1.
Allow ample project time; start planning 1-2 years before new data
center must be operational, even though colo can be procured in as
little as 60 days.
Carefully define facility needs: space, power density, reliability,
systemic redundancies & design preferences). Force IT users to
forecast growth to avoid over- or under-provisioning.
Create an effective multi-disciplined project team (IT, engineering,
real estate, legal). If needed to supplement in-house knowledge,
engage expert consultants (architects, engineers, site selectors,
incentives advisors, legal counsel).
Select locations strategically to meet project objectives, reduce
occupancy/utility costs, improve telecom connectivity, and include
colo providers best suited to meet the company’s long-term needs.
2.
3.
4.
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Baker’s Dozen: (13)
Recommendations
for Procuring Colo
5.
6.
7.
8.
9.
Challenge colo vendors (and your IT team) to creatively devise
contract flexibility – future changes in suite and power size, multiple
locations within their portfolio, and switching services across their
organization; e.g. substitute cloud spend for space/power spend.
Incorporate a combination of “must take” space/power increases with
optional increases to best address expansion flexibility.
In addition to negotiating aggressively on initial pricing, get
expansion provisions with multiple pricing options, such as current
rate, ROFR on adjacent space, and “most favored nation”.
Get fixed “rate card” pricing for optional managed services, and early
termination options on all managed services and cloud services.
Obtain sublease and contract assignment rights.
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Baker’s Dozen: (13)
Recommendations
for Procuring Colo
10.
11.
12.
13.
Get the right to bring new telecom carriers into the colo’s “meet-me”
room, especially if you already have carrier discounts. Pick a colo
with dark fiber, so you can bring in new cheaper carriers easily.
At the closing table, when you’re about ready to sign the new colo
contract, don’t be bashful in asking the colo provider to cover all or
part of your installation costs. (Many providers are willing to make
one-time cost concessions to win contracts.)
Similar to other IT vendor relationships, end-of-quarter and end-ofyear can be great times to sign new colo contracts, especially with
publicly-traded providers eager to “make their numbers”.
Carefully scrutinize any under-construction facility not yet fully
operational – demand detailed construction and commissioning
schedules. Some colo providers “over promise” delivery dates.
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Follow-Up Questions?
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