Data Center Construction Is Booming. Is Your Specialty Contracting Business Financially Ready?

Data center construction is creating significant opportunities for electrical, mechanical, HVAC, plumbing and other specialty trade contractors. According to ConstructConnect, U.S. data center construction starts reached $77.7 billion in 2025, an increase of nearly 190% from the previous year.

However, winning a large data center project does not automatically translate into stronger financial performance.

These projects may require substantial equipment purchases, lengthy procurement timelines and significant cash commitments well before contractors receive payment. A profitable-looking contract can place pressure on working capital, credit availability and bonding capacity if its financial demands are not carefully evaluated.

Before submitting a bid, contractors should determine whether the business is financially prepared to support the work from procurement through final payment.

Long-Lead Equipment Can Create Cash Flow Gaps

Data centers depend on costly electrical and mechanical systems, including transformers, switchgear, generators, chillers, cooling equipment and backup power infrastructure. Some of this equipment may need to be ordered months—or even more than a year—before installation.

Manufacturers may require deposits, progress payments or noncancelable purchase commitments to reserve production capacity. At the same time, the contractor may not be permitted to bill the customer until the equipment is fabricated, delivered or installed.

That timing difference can create a significant cash flow gap.

Contractors may need to fund:

• Equipment deposits and supplier payments
• Payroll and subcontractor costs
• Storage, transportation and insurance
• Bonding and financing expenses
• Project-management and administrative costs

The contract should clearly address when stored materials and off-site equipment may be billed. Contractors should also understand who is responsible for price increases, project delays, storage costs, design changes or equipment that is no longer needed.

Before committing to the project, management should calculate the maximum amount of cash the company may have invested at any one time. The forecast should also account for delayed billing approvals and slower-than-expected collections.

A project can generate an acceptable profit margin and still create financial stress if cash leaves the business much earlier than it returns.

Consider the Project’s Effect on the Entire Company

Large data center packages should not be evaluated only by their contract value or expected gross profit.

Management should also compare the project with:

• The company’s annual revenue
• Its largest previously completed contract
• Available working capital
• Existing credit availability
• Current and projected backlog
• Bonding capacity
• Exposure to the customer or developer

A single project that represents a large share of the company’s revenue or backlog may increase customer and project concentration risk. A payment dispute, construction delay or change in the owner’s development plans could then affect the contractor’s entire operation.

The project may also consume financial resources that would otherwise support existing jobs or future opportunities. A contractor that uses most of its credit line or bonding capacity on one award may have limited flexibility to pursue other profitable work.

Lenders and sureties should therefore be included in the discussion before the bid is finalized. They can help determine whether the contractor has sufficient financial capacity and whether the proposed project could affect existing borrowing or bonding arrangements.

Contractors should also verify which entity is legally responsible for payment. A recognizable technology company may be associated with the development, but the contractor’s agreement could be with a developer, construction manager or project-specific entity with a different financial profile.

Financial Reporting Must Keep Pace With the Project

Large data center contracts can quickly expose weaknesses in construction project accounting and work-in-progress reporting.

Management should have timely access to information such as:

• Contract value and approved change orders
• Costs incurred and costs committed
• Equipment deposits and supplier payments
• Amounts billed and collected
• Estimated costs to complete
• Underbillings and overbillings
• Pending change orders
• Projected final gross profit
• Cash invested in the project

Committed costs are especially important. A purchase order may not yet appear as an incurred expense, but it still represents an obligation that should be reflected in the project forecast.

Contractors should also be careful when major equipment is purchased early. Depending on the accounting method used, those purchases may make the project appear further along financially than it is operationally. Installation, testing and commissioning costs may still remain.

Unapproved change orders should be tracked separately rather than treated as guaranteed revenue. If projected profitability depends heavily on changes that have not yet been approved, management may be relying on profit that is still subject to negotiation.

Financial reporting should help management identify whether a project is producing sustainable profit or simply consuming cash while appearing successful on paper.

Prepare Before the Opportunity Becomes an Obligation

Data center construction may offer substantial growth opportunities for specialty contractors, but the largest contract is not necessarily the best contract.

The right project is one the business can finance, monitor and complete without weakening its existing operations. A careful financial review may support pursuing the full opportunity, negotiating more favorable billing terms, reducing the proposed scope or arranging additional financing before work begins.

Porte Brown’s construction advisory team can help contractors evaluate major opportunities through cash flow forecasting, construction project accounting, work-in-progress analysis and outsourced controllership and CFO services. Please contact a member of the Porte Brown team to discuss whether your business is financially prepared for its next major project.