Insight Service: Corporate

Working in the Indian Data Centre Market

Taj Mahal

In 2020, the Indian Ministry of Electronics and Information Technology announced its draft Data Centre Policy, designed to make the country more attractive for domestic and foreign investment into the data centre sector. In this article, Ed Cooke, Founder at Conexus Law, shares some of his experiences of working on Indian projects including some of the key differences in design and construction contracts.

The vision

The government’s vision is to make India a global data hub, primarily by promoting the data centre sector to give it infrastructure status and creating a benign regulatory environment. Plans also include establishing Data Centre Economic Zones with high-quality power and connectivity infrastructure, water and other utilities, and creating financial incentives, particularly for the use of Indian-manufactured equipment and hardware. In fact, certain state governments, such as the states of Tamil Nadu and Uttar Pradesh, have already announced state-wide policies to encourage data centre development.

Over the past few years, a number of global data centre operators have announced investment partnerships focused on the Indian market. These include the recently announced joint venture between Digital Realty and Brookfield Infrastructure Partners, Yondr’s venture with Singaporean Everstone Group, AdaniConneX (a JV of EdgeConneX and Adani Group), and announcements of hyperscale data centre developments by the likes of CapitaLand, Hiranandani, NTT, and STT GDC. In fact, Mumbai, Hyderabad, Chennai, Bangalore and Delhi are already well advanced as important locations to serve the increasing Digital Transformation among the Indian domestic market and the global communications market. Mumbai, in particular, has been the premier choice for hyperscale developments due to its infrastructure availability and proximate subsea landing stations.

Understanding the differences

At Conexus Law, we have recently been working for US and European based clients on the construction of hyperscale size data centre projects in India. As commercial and legal advisors specialising in technology infrastructure, one of our regular tasks is to help clients enter new markets.

This includes helping them to understand the legal, commercial and cultural differences compared to operating in their ‘home’ environment. We always work with local partners and it is a part of our work that we really love doing.

The Indian legal system is fashioned on English common law, but overlayed with Indian legislation and regulatory laws. Indian court judgments set precedent and so it is important to understand both the legislative and common law context in which you are working.

In our experience, most data centre construction contracts in India are either based on a bespoke form of contract or a FIDIC standard form (usually a Yellow Book). There are also other inevitable regional differences.

Areas to focus on

As an example, labour and the supply chain are a huge and complex area in India and we often get involved in advising clients on their approach to procurement, and to monitoring second and third tier suppliers. Performance security, bonds and third-party guarantees/letters of credit are extensively used on large construction projects in India and we play a role in monitoring these. Also structuring payments against milestones – in particular protections around advance payments – are, in our experience, common in India.

The quality and workmanship – and in particular compliance with local and international codes and standards – is an area of real focus and aligns with detailed staged and integrated commissioning processes. There are also a number of compulsory insurances required in India alongside those which would normally be expected by an international client.

Cultural considerations

When we are negotiating in a different country or culture, we work hard to understand how the approach of our negotiating partner might differ from your own. It is always risky to try to characterise a whole nation or culture by a set of rules and so there needs to be a lot of ‘finding your way’ with the relevant individuals. However, we find cultural frameworks such as the well-known Geert Hofstede index, can be useful as a starting point. For example, through that, we learn that Indian culture scores highly in relation to its appreciation of hierarchy. It is therefore important to establish early on where the individuals we are negotiating with fit and ensure that either negotiations on specific points are conducted at the right level. An alternative is to provide enough justification for our stance to enable the individual to take the decision back to his or her superiors and make a convincing argument. It is quite easy to cause offence by not respecting the hierarchical structure (perhaps by seeking to jump a level in order to get faster resolution of an issue). To the western negotiator who is often time pressured, negotiating can feel like a very slow process but it is important to temper frustrations for the long-term goal. Also remember, as with many Asian cultures, that the term ‘yes’ is often used to indicate understanding of the point being made, not agreement to it. In our experience, this can cause clients great difficulty when they report that an issue has been closed out, only to find it has not been.

In conclusion, investment in digital infrastructure is happening at scale in India and there is a vast amount of further potential in this market. In fact, investment in the Indian data centre market is expected to reach US$8 billion by 2026. There are inevitable challenges in meeting the demand of a very tech-enabled population and business sector quickly enough, with reliable infrastructure to overcome historic under-investment in the region, such as quality construction and availability of highly qualified labour. We are proud to be part of it.

What to Consider if Your Contractor Goes Bust

As a result of the pandemic, we have seen, and advised on, numerous instances where main contractors have downed tools or closed sites. In some cases, this has been a temporary hiatus to construction works as we and our client employers have persuaded or assisted main contractors to return to site. However, we have unfortunately seen occasions where the contractor has gone bust and never returned to site.

If faced with contractor insolvency, we set out below what you need to consider and those matters with which you may need to deal:

If you have a funding agreement, notify your funder of the contractor’s situation. Buy yourself some time with your funder to give you breathing space to work out how any outstanding works are to be completed. Remember that most funding agreements will contain obligations requiring you to provide information (such as news of insolvency) to the funder in a timely fashion.

Immediately secure the site and materials on it. Ascertain what you have paid for in full, what is part paid for and what are contractor or sub-contractor assets on site.

Prepare a detailed valuation of the works and, if you have one, request the contract administrator to undertake a formal valuation. Ascertain the works to be completed (including any defects not yet rectified), revise any works programme (including ascertaining what is on the critical path), calculate the costs to finalise the works, whether extra funding will be required to finalise them and any disputes about the works already existing.

Check insurance coverage and insure the site, the works and check the insurance position in respect of any third party assets to remain on site. The contractor will likely have carried public liability, employers liability, professional indemnity insurance (if providing design) and contractor’s all risk insurance. These may come to an end with its insolvency or termination of the building contract (see below). Decide what insurances you will need in place for the future of the project. Also check any insurances you have in place in respect of the project and whether they require you to inform your insurer of the main contractor’s insolvency.

Check the contractual documentation:

  • Be it a JCT contract, NEC form of contract or bespoke agreements, they should set out provisions for termination on insolvency of the main contractor. Follow the provisions of your contracts to the letter to formally bring your contract with the main contractor to an end, especially where you want to engage a new contractor to finish any works or oversee their completion yourself.
  • Is there a parent company guarantee or performance bond you can claim under?
  • Have the trigger events in such agreement occurred?
  • Do you have any collateral warranties from subcontractors? These may assist you and give you step in rights to take over vital supply chain contracts.

Make immediate checks to ensure that documentation for which the contractor was responsible can be located and is up to date (eg health and safety records, drawings, test certificates, manufacturers’ warranties etc).

Unless commercially imperative, do not make any further payments to any party about the works until you know your full position.

Decide how any outstanding works are to be completed after formal termination of the main contractor’s contract. Generally, the options will be a new main contractor or the employer or a construction manager to manage the existing or new sub-contractors. Agree a new contract with a new main contractor (likely to be on a cost plus basis) or with a construction manager.

Take advice as to whether you have any claims against the main contractor and whether these are commercially worth pursuing.

The first days after a main contractor has entered into some form of insolvency procedure are critical and it will be an intensive time of information gathering and decision making. It is however hoped that you will have seen some of the warning signs that your main contractor may be in difficulty (eg less activity on site, slow or late deliveries, plant or equipment disappearing from site, requests for accelerated payments, programme issues, persistent rumours about the main contractor’s financial position including sub-contractors and suppliers not being paid, late filing or qualified accounts being filed at Companies House and a new evasiveness in communications) before they go bust and you have been able to undertake some pre-planning before their insolvency occurs.

HOW CAN CONEXUS LAW HELP?

If you would like advice on your options where you believe that your main contractor may be in financial difficulties or after it goes into insolvency, please contact Ian Timlin or Ed Cooke whose details are below.

Ian Timlin
Main: +44 (0)20 7390 0280
Mobile: +44 (0)77 6742 7332
[email protected]

Ed Cooke
Main: +44 (0)20 7390 0281
Mobile: +44 (0)7535 123000
[email protected]

Arbitration – Why have an Arbitration clause in your commercial contract?

Agreement

In recent months, we have written about using mediation and adjudication as dispute resolution tools. But let’s look at another option open to you, when you engage in your commercial contracts.

Below we consider Arbitration, and what benefits it might have for you in resolving conflicts arising from your commercial contracts instead of using Court proceedings.

First, unless a party has agreed to arbitrate you cannot force them to do so. It is a private binding form of dispute resolution conducted before an impartial Arbitration body.

So why have an Arbitration clause in your commercial contracts to resolve disputes?

Well, litigation in England is a public proceeding before a Judge or Tribunal. It is not just public if the dispute eventually goes to trial. For example, many publications/journalists keep a watching brief at the High Court in London in respect of any Court claim issued. They can obtain copies of the pleadings (the Particulars of Claim, Defence and Reply) and often their attachments filed in any Court proceedings on payment of a small fee. This is without obtaining the Court’s permission to do so and without notice being given to any of the parties.

Arbitration is however private and confidential (unless you need to enforce an Arbitration award but even then the minutiae of your dispute is likely to remain confidential). Using Arbitration, it is easier for the parties to avoid damaging publicity and to preserve sensitive commercial information from entering into the public domain.

It also gives the parties greater variety and flexibility in how they resolve any dispute. The parties are free to choose their own tribunal – usually one or three arbitrators from one of the leading Arbitration bodies such as the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA) or The International Centre for Dispute Resolution (ICDR). That provides focused expertise (factual and/or legal) and you get one panel dealing with all aspects of an Arbitration from the start to end of the process.

Arbitration rules are flexible and streamlined and parties are not bound by national Court rules. Flexibility extends to the choice of law, venue for and language of resolving the dispute. So if your counterparty is based abroad and not keen on English law or the English Courts dealing with any dispute, you could as a compromise suggest that your contract have an Arbitration clause stating, say, that any dispute between the parties, be governed by English law but heard in Geneva[or any other locality you and they agree on], will be resolved pursuant to the ICC Rules with three arbitrators and the language of the Arbitration will be English. That gets around a party not wanting to submit to the jurisdiction of the other party’s local/national court.

The parties are also given autonomy to shape the form and scale of the Arbitration. Arbitrators can be selected by the parties for their familiarity with commercial and trade matters and may not necessarily be lawyers (although at least one on a three member Arbitration panel is likely to be). That circumvents the problem in some jurisdictions of judges not having relevant experience of a particular area.

As a client, you can be represented by lawyers and/or technical experts at an Arbitration hearing and not just limited legal advocates having particular rights of audience in a particular jurisdiction.

An Arbitration award is normally final and binding. The grounds for challenging an award are limited. As such, an appeal of an Arbitration award is difficult and it potentially cuts down on years and years of litigation to different appellant courts.

In some countries, the national courts are over‐burdened and it can take up to 10 years for a matter to come to trial. Arbitrating a substantial dispute usually takes 14-18 months to get to a final hearing. So whilst roughly on a par with the current length of English High Court proceedings getting to trial, the speed of Arbitration can be an advantage when compared to litigating in some jurisdictions.

The New York Convention provides for the enforcement of Arbitration awards. As of March 2021, 168 countries are a party to it and agree to enforce Arbitration awards made in other countries in their country. So Arbitration awards are more widely and readily enforced than Court judgments.

In our experience, the major disadvantage of Arbitration is its cost. Each of the Arbitrators needs to be paid on a hourly rate basis plus the administrative expenses of the Arbitration body setting up the Arbitration and the hiring of a venue for hearings. This is usually opposed to a one off Court fee or relatively low Court fees paid during a Court action (up to and including a trial) and no Court venue charges.

It is also not particularly workable where you want to join third parties into disputes where your relationship with that third party is not governed by Arbitration or you have agreed to arbitrate with that third party using a different Arbitration body/clause to the one in which the primary claim against you is being made.

Arbitration will not be right for every commercial agreement and should be considered on a case by case basis. In respect of high value contracts with international elements (either in respect of one or both parties or the subject matter), it will be worth detailed consideration.

If you would like more advice on whether you should consider having an Arbitration clause in your contract, and the form of it, please contact Ian Timlin whose details are below.

HOW CAN CONEXUS LAW HELP?

For further advice on adjudication, please contact Ian Timlin via his contact details below. Ian has been a CEDR accredited mediator since 2000.

Ian Timlin
Main: +44 (0)20 7390 0280
Mobile: +44 (0)77 6742 7332
[email protected]

Data Centre Alliance talks to Ed Cooke

We have completed a series of three briefings with the DCA.

In this first webinar, Steve Hone from the Data Centre Alliance speaks to Ed Cooke and looks at the value of relationship contracting.

 

 

Fact Sheet: Publishing a modern slavery statement during the pandemic

Under the Modern Slavery Act 2015, commercial organisations that meet the requirements below are required to publish an annual modern slavery statement setting out the steps they have taken to identify and address their modern slavery risks:

  • ‘body corporates’ or partnerships, wherever incorporated or formed
  • that carry on a business, or part of a business, in the UK
  • and supply goods or services
  • with an annual turnover of £36 million or more.

Fact Sheet: Struggling to meet your contractual obligations? What are the issues and options?

Life and business has got a lot more difficult and complicated since the classification of COVID-19 as a pandemic.

As a result, all businesses have or will be looking at their financial and logistical obligations to third parties.

If you are struggling to meet any of those obligations, please consider this guidance to see if you can implement any of our suggestions.

Law firm specialises in physical and digital infrastructure, Datacentre Solutions

A law firm that focuses solely on supporting companies at the intersection where the built environment, technology and people converge, has launched today. Conexus Law will work closely with clients in the connected world in both IT, telecommunications, infrastructure and datacentre construction and with engineering businesses delivering major infrastructure projects.

The company has been founded by Ed Cooke, a recognised expert in critical IT infrastructure, engineering, procurement and construction. He has previously been a partner in international law firms DLA Piper and Bird & Bird. Conexus Law is founded on the belief that its people can only deliver the best counsel if they have a strong understanding of the industry challenges and the underlying technology and processes, so every member of the team has specific industry expertise.

It will take a fresh and different approach to legal practice, in many ways mirroring the way its clients operate, using similar language and processes to enable seamless interaction, identifying key risks and creating flexible legal frameworks.

Ed Cooke, Founder at Conexus Law, said: “With growth continually outstripping predictions, the digital sector is facing major challenges around the unprecedented pace of change, lack of resources and an inability to predict what the future technology landscape will look like or demand. In addition, innovative technologists are pioneering emerging technology where there is often no legal precedent and the regulatory environment frustrates innovation. Conexus Law will deliver robust, creative and commercially pragmatic global solutions in this fast moving and unpredictable sector.”

Source: datacentre.solutions/news/58394/law-firm-specialises-in-physical-and-digital-infrastructure