The Perils & Pitfalls When Contractors Move from Building Construction into Data Centre Projects in Malaysia

Executive Introduction

Malaysia’s data centre sector is no longer simply expanding — it is tightening and maturing.

But beware, IT IS NOT A WALK IN THE PARK for newbies. They might be lured by the high price tag that comes with such Projects and the high margins/profits that seem available for the taking when compared to the rates traditionally used for building construction.

Yes, it is extremely profitable if you get it right. BUT getting it right the first few times around is much easier said than done. No newbie has ever done so. Data centres construction are even more demanding than the O & G Projects, which used to be number one.

A small clue — Take a quick look at the FIDIC Yellow Book used for the M&E system Contract. They are very heavily amended, even more so than any current O & G Projects. This is clear evidence of the enormous risks being transferred to the Contractor.

What began as a surge driven by hyperscalers and cloud demand is now evolving into a far more disciplined environment, where power availability, water resilience, sustainability expectations, regulatory scrutiny, and actual delivery capability determine whether a project succeeds or stalls.

For many developers and contractors transitioning from conventional building construction, this shift is not always immediately understood. On the surface, a data centre still resembles a building project — albeit one with more sophisticated mechanical and electrical systems. In reality, it is a mission-critical infrastructure asset, where performance, integration, and operational certainty take precedence over physical completion.

This paper sets out the key perils and pitfalls now emerging in Malaysia, structured across two core chapters — one addressing developers, and the other contractors. These observations are grounded in what is already happening in the market, where assumptions made at the outset are increasingly being tested under real-world constraints.

Chapter 1: The Perils & Pitfalls for Developers

1.1 Power Availability as a Project-Defining Constraint

In traditional developments, electrical supply is typically treated as a downstream utility matter. In data centres, this approach is no longer tenable. Power is now a front-end determinant of project viability.

The scale of demand required by modern facilities means that grid capacity is not uniformly available, and where it is available, it may be subject to:

  • Phased delivery
  • Infrastructure limitations
  • Regulatory and policy considerations

Developers who proceed without firm clarity on:

  • Incoming capacity
  • Redundancy configuration
  • Timeline for energisation

…often encounter redesign, delay, or capacity reduction at a later stage.

A critical but frequently overlooked aspect is power provision for Testing & Commissioning (T&C). A data centre cannot be properly validated without operating under realistic load conditions. This requires substantial and stable power, sometimes approaching operational levels.

Where this is not secured:

  • Commissioning becomes theoretical rather than actual
  • System performance remains unproven
  • The asset may be handed over with hidden operational risks

This is not a technical oversight — it is a fundamental commercial exposure.

1.2 Water Supply and Cooling as Strategic Constraints

Cooling is central to data centre operation, and in Malaysia’s current environment, it is increasingly tied to water availability and sustainability expectations.

Developers often begin with a design-centric approach, focusing on:

  • Cooling systems
  • Efficiency targets
  • Layout optimisation

However, the more fundamental question is frequently overlooked:

Whether sufficient and reliable water supply exists to sustain the chosen cooling strategy over the long term.

With increasing attention on:

  • Water usage effectiveness
  • Regional water stress
  • Environmental sustainability

…cooling can no longer be treated as a purely technical matter.

A misalignment between:

  • Cooling design
  • Water availability

…can result in a facility that is technically complete but operationally constrained.

1.3 Authorities Approval as a Multi-Layered Process

Approval processes for data centres are becoming increasingly complex.

Unlike conventional developments, approvals are no longer confined to planning and building compliance. They now involve:

  • Energy-related considerations
  • Environmental and sustainability metrics
  • Infrastructure capacity alignment

This creates a situation where:

  • A project may be fully designed
  • Yet unable to proceed due to external constraints

Developers who assume a linear approval pathway often face delays that cannot be resolved through design adjustments alone. The issue lies not in the project itself, but in whether the supporting ecosystem can accommodate it.

1.4 Commercial Overcommitment to Tenants

In a competitive market, developers often seek to secure anchor tenants early. This can lead to commitments on:

  • Delivery timelines
  • Capacity availability
  • Performance standards

However, such commitments are sometimes made before:

  • Infrastructure is fully secured
  • Procurement timelines are validated
  • Contractor capability is confirmed

This creates a structural risk where:

  • Delivery expectations exceed practical capability

In data centres, failure to deliver does not merely result in delay. It may lead to:

  • Loss of key tenants
  • Damage to market positioning
  • Long-term asset underperformance

1.5 Sustainability as a Core Design Requirement

Sustainability is no longer a peripheral consideration. It is becoming embedded in:

  • Design expectations
  • Regulatory frameworks
  • Market competitiveness

Developers who treat sustainability as:

  • A certification exercise
  • A marketing layer

…often find themselves constrained later in the project lifecycle.

In reality, sustainability affects:

  • Cooling strategies
  • Power sourcing
  • Water usage
  • Site viability

A facility that fails to align with expected benchmarks may still be completed, but may struggle to remain competitive in an increasingly selective market.

1.6 Infrastructure Reality vs Development Assumptions

The Malaysian data centre market is now confronting a simple but critical truth:

Not every site that is commercially attractive is technically viable.

Constraints around:

  • Power
  • Water
  • Environmental impact

…are beginning to shape development decisions in a more fundamental way.

Developers who continue to rely on conventional land acquisition logic — where infrastructure is assumed to follow development — are likely to encounter increasing friction. In data centres, infrastructure must precede commitment, not follow it.

Chapter 2: The Perils & Pitfalls for Contractors

2.1 Mischaracterising the Project

For contractors, the most significant mistake is conceptual.

A data centre is often approached as:

A more complex version of a conventional building project.

In reality, it is a performance-driven system, where:

  • The building supports the systems
  • Not the other way around

This distinction fundamentally alters how the project must be managed.

Completion is no longer defined by:

  • Installation
  • Visual progress

But by:

  • Verified system performance
  • Integrated operational readiness

A contractor may complete all physical works and still fail to achieve true completion if the systems do not perform as required.

2.2 Commissioning as the Central Discipline

In conventional construction, commissioning is typically positioned at the end of the project lifecycle.

In data centres, commissioning must:

  • Begin early
  • Influence design
  • Drive installation sequencing

Every system must be tested:

  • Individually
  • In combination
  • Under simulated failure conditions

Where commissioning is:

  • Underestimated
  • Under-resourced
  • Introduced too late

…the project may reach apparent completion while remaining functionally unverified.

2.3 Interface Management Across Specialist Systems

Data centres involve multiple interdependent systems, including:

  • Electrical distribution
  • Cooling infrastructure
  • Control systems

The challenge is not merely to deliver each system, but to ensure that they:

  • Interact correctly
  • Operate cohesively

Where interface ownership is unclear:

  • Gaps emerge
  • Conflicts arise
  • Integration fails

A single breakdown in interface coordination can compromise the performance of the entire facility.

2.4 Procurement as System Definition

Procurement decisions in data centres extend far beyond cost considerations.

Each major equipment choice influences:

  • Design assumptions
  • Integration pathways
  • Commissioning procedures

Contractors accustomed to conventional procurement may:

  • Finalise decisions late
  • Substitute components without full analysis

In data centres, such actions can:

  • Disrupt system alignment
  • Require redesign
  • Delay commissioning

Procurement, therefore, becomes a process of defining system behaviour, not merely acquiring components.

2.5 Exposure to Performance-Based Liability

Contractors frequently assume obligations that extend beyond construction.

These include:

  • Design coordination
  • System integration
  • Performance outcomes

However, reliance on:

  • Specialist vendors
  • Third-party designers

…does not reduce responsibility.

Where performance targets are not met:

  • Liability often consolidates at the contractor level

The traditional defence of compliance with drawings is insufficient where the system fails to perform as intended.

2.6 Programme Misalignment with Operational Readiness

Traditional construction programmes focus on:

  • Sequence of works
  • Physical completion milestones

Data centre programmes must instead reflect:

  • System readiness
  • Integration status
  • Testing progression

A project may appear on schedule in construction terms, yet be significantly delayed in achieving:

  • Operational readiness
  • Commissioning completion

This creates a disconnect between perceived progress and actual deliverability.

2.7 Documentation as an Operational Requirement

Documentation in data centres is not a closing formality. It is integral to:

  • Safe operation
  • Maintenance
  • Troubleshooting

Key documentation includes:

  • System schematics
  • Control logic descriptions
  • Test records
  • Operational manuals

Inaccurate or incomplete documentation can:

  • Impair system operation
  • Increase operational risk
  • Complicate dispute resolution

2.8 Capability Constraints in a Growing Market

Malaysia’s rapid data centre expansion is placing pressure on:

  • Skilled labour
  • Experienced engineers
  • Commissioning expertise

Contractors expanding into this sector may:

  • Overextend their teams
  • Rely on insufficiently experienced personnel

This leads to:

  • Reduced quality control
  • Increased risk during commissioning
  • Higher likelihood of system failure

In data centres, experience is not supplementary — it is essential.

Executive Closing

Malaysia’s data centre sector presents substantial opportunity — but it is also increasingly unforgiving.

For developers, the primary risks lie in:

  • Misjudging infrastructure constraints
  • Overcommitting commercially
  • Underestimating regulatory and sustainability pressures

For contractors, the risks lie in:

  • Managing the project as a conventional building
  • Losing control of system integration
  • Accepting performance obligations without full control

The central misconception persists:

That data centre construction is an extension of building construction.

It is not.

It is a transition into a performance-driven, precision-managed environment, where:

  • Constraints must be understood early
  • Systems must be integrated fully
  • And completion must be demonstrated, not declared

Those who fail to recognise this shift will encounter delay, rework, and exposure. These costs could erode the company’s P & L account into negative territory if they are unable to do it right.

Those who adapt — who align design, procurement, execution, and commissioning with operational reality — will not only mitigate these risks. They will define the standard for data centre delivery in Malaysia in the years ahead.