Averting a data center legal crisis


Responding to a data center crisis

Given the tremendous potential legal liability resulting from an outage, how should engineers, owners, and contractors respond to an outage or potential outage? As an initial matter, parties should take reasonable and business-like decisions to prevent or reduce their damages. An owner should attempt to mitigate its damages by taking steps to avoid or shorten an outage. If a court or arbitrator later determines that a data center owner or operator increased its damages by failing to act reasonably in response to a crisis or potential crisis, it may reduce the amount of damages the owner can recover.

And what about engineers, IT vendors, and contractors who become aware of an outage, either as a result of contact from the owner or through some other means? Even if these parties believe they may be later blamed for the incident, they should still consider offering assistance to the owner if they believe they can help reduce the duration and cost of an outage. Doing so could reduce all parties’ potential losses and may also preserve client relationships and one’s professional reputation.

Engineers, however, also need to protect themselves and their businesses. If a data center for which you provided services experiences a serious outage or other failure, you should promptly consult with a lawyer with experience in engineering malpractice matters and notify your malpractice insurance carrier. The failure to provide prompt notice could, depending on the terms of the policy and laws of a particular state, result in a loss of coverage. While it may be in your interest to assist an owner in solving a problem, you should avoid prematurely admitting fault or agreeing to take responsibility for the outage. Doing so could subject you to liability for an incident that may turn out not to be your fault and could also result in a loss of insurance coverage for the incident. Care must also be taken to preserve all relevant documents and data. An experienced lawyer can provide critical advice with regard to your relationship with the owner and insurers so that you preserve your rights while also, to the extent possible and appropriate, providing information and assistance. However, providing assistance and information could be difficult if, as sometime happens, the problems with a data center are discovered years after construction is substantially complete.

Latent defects

As part of their IT planning process, corporations typically expect to increase their use of a data center over time. That is, even if the data center is designed to provide a certain amount of power and cooling for the computers on the raised floor, the data center owner typically does not plan to use all that data center capacity initially. Instead, an owner will forecast its future needs, which can be difficult as technology and use keep changing, and procure data centers to satisfy those needs into the future. As a result, the capabilities of a data center’s infrastructure may not be fully utilized until years after the substantial completion of construction.

Also, data centers are sometimes built in phases with planned expansion. In such cases, some of the infrastructure necessary for later phases, such as underground electrical conduits, may be designed and constructed during the initial phase to avoid later disruptions and inefficiencies. As with the planned increase in the use of a data center, this situation can result in portions of a system that are not used or not fully used for a number of years. In either of these scenarios, systems may be designed and built to a designated capacity but may not experience use at or close to that capacity for years. As a result, failures of design and/or construction could remain undetected for some time. For example, if portions of the electrical system do not have the ampacities required by the owner or specified in the contract documents, the defect may not be found until electrical loads increase. We are aware of at least three instances in recent years in which defects were discovered years after a data center was constructed.

When prompt legal action is necessary

When a defect of construction or design is discovered years after construction, it can cause particular legal issues. Most U.S. jurisdictions have statutes of repose, which are laws that can protect designers and contractors from liability for incidents that occur years after construction is substantially complete. The repose periods differ state by state, but 10 years is a common period. So, an owner who discovers a problem with the design or construction of its data center years after construction is finished will not be able to successfully sue the engineer or contractor if the repose period has run. However, while statutes of repose generally protect engineers, they can have a downside. An engineer who is sued by someone, like an owner, may have little or no time to in turn bring its own claims against other parties that may be responsible, such as a subconsultant, contractor, or subcontractor.

If a problem with a data center is discovered years after construction, perhaps as a result of an outage, it is particularly important to promptly engage legal counsel. Owners may have very little time to file suit, if that’s appropriate, and engineers and contractors may need to be ready to quickly bring their own claims to preserve their rights. We always recommend promptly consulting with an experienced lawyer in these situations, but the situation is particularly urgent when it involves a data center that has been operational for years.

Jocelyn L. Knoll is chair of the construction and design practice group, a member of the energy and insurance practice groups, and a member of Dorsey & Whitney’s policy committee. She has extensive experience in construction and energy law, representing a broad range of clients across the construction, energy, mission critical, and manufacturing industries. Colin Wicker is a senior attorney in the firm’s construction and design practice group.

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