Why Cost and Value Engineering Will Be Critical to Delivering the Next Wave of Growth
The race to build data centres is accelerating at an unprecedented pace. Driven by the growth of AI, cloud computing and digital services, infrastructure providers are investing hundreds of billions of pounds into new capacity. Gartner forecasts global spending on data centre systems to reach approximately £620 billion in 2026, while the world’s largest technology firms are expected to invest the equivalent of more than £500 billion annually in AI and data centre infrastructure.
This surge in demand is creating intense competition for critical equipment. Transformers, switchgear, generators, cooling systems, UPS infrastructure and electrical distribution equipment are all facing supply constraints, extended lead times and rising prices. Research suggests the US electrical equipment market supporting data centres could grow from the equivalent of approximately £15 billion to more than £48 billion by 2030.
Whilst the opportunity is significant, so is the challenge. Many developers and operators are finding that securing equipment is no longer enough. The real question is whether they are paying the right price.
In a capacity-constrained market, suppliers naturally gain pricing power. Costs may increase due to labour, materials and energy inflation, but many organisations struggle to differentiate between genuine cost increases and market-driven price escalation. Procurement teams can therefore find themselves accepting supplier pricing with limited visibility of the underlying cost drivers.
Moving From Price To Cost
This is where Cost and Value Engineering can become a major competitive advantage.
Leading organisations are increasingly moving beyond traditional tendering exercises and adopting should-cost modelling to understand what equipment should cost before entering negotiations. By analysing raw materials, labour content, manufacturing overheads, logistics and supplier margins, organisations can establish a fact-based target price and negotiate from a position of knowledge rather than assumption.
The benefits extend beyond supplier negotiations. Should-cost modelling can identify opportunities to source equipment from alternative manufacturing locations, benchmark supplier economics and evaluate different design, specification and sourcing options.
The difference can be substantial. Variations in labour rates, energy costs, productivity and local supply chains can create significant price gaps between regions. Our experience applying cost and value engineering across industrial sectors has identified opportunities including:
- Up to 55% on castings and forgings
- Up to 42% on electronics assemblies
- Up to 36% on machined components
- Up to 45% on hydraulic systems
- Up to 33% on process and fabricated equipment
Protecting Both Cost And Schedule
For data centre programmes worth hundreds of millions of pounds, these percentages quickly become material. A 5% reduction in capital expenditure on a £1 billion programme releases £50 million of value that can be reinvested in additional capacity, resilience or shareholder returns.
However, cost cannot be considered in isolation. An illustrative three-month delay on a large-scale data centre could defer more than £125 million of revenue. It could also weaken competitive market position by allowing rivals to bring capacity online first, secure customer demand and capture scarce power and equipment capacity.
The objective is therefore not simply to purchase at the lowest price. It is to establish the best total value position across equipment cost, technical performance, resilience, lead time and speed to revenue.
As the industry continues its rapid expansion, success will increasingly depend on supply chain intelligence as much as access to capital. The organisations that understand true cost structures, challenge supplier pricing with confidence and leverage global sourcing opportunities will be best positioned to deliver infrastructure at the speed and cost the market demands.
In a market defined by unprecedented demand and constrained supply, understanding cost rather than price may become one of the most important competitive advantages in the data centre sector.
Unlock hidden value in your data centre investments.
In a market where equipment costs are rising and supply is constrained, understanding what you should pay can be a significant competitive advantage. Speak to our team to explore how Cost and Value Engineering can reduce costs, accelerate delivery and improve programme outcomes: James Cuthbert or Peter Hatfield.
