British statesman Winston Churchill once wrote that “True genius resides in the capacity for evaluation of uncertain, hazardous, and conflicting information.” He understood that good decision-making requires careful analysis of both third-party prepared information and self-developed research, which is exactly what evaluating a colo proposal entails.

This article assumes that enterprises have recently distributed requests for proposals to several colo providers (as discussed in Part 4 of this 6-Part series that outlines, from start to finish, the process of colocation selection and procurement), and they are now reviewing the submitted proposals.

At its most fundamental level, evaluating colocation proposals involves comparing providers’ responses against your organizational needs, as defined during the scoping process, and usually involves confirming four fundamental questions.

1. Can the provider supply the space and power on the desired timeline in a facility that meets the reliability requirements?
2. Is the proposed solution flexible to meet the user’s requirements as they evolve over the next few years?
3. Is the provider competent in managing their facility and delivering services for a fair price?
4. Are there any “deal killer” hazards or risks, such as an adjacent, potentially explosive fertilizer plant or a base building with insufficient seismic resistance in an earthquake-prone area?

The Deeper Dive

Beyond these fundamental questions are the more nuanced elements of evaluating the proposals, facilities, and providers. Sophisticated enterprises dive deeper to choose the optimal solution. Especially in the current colocation marketplace, where there may be many well-qualified providers with shiny new buildings, this process usually involves evaluating numerous additional topics in more detail.

“One of greatest dangers of colo selection is not viewing the solutions holistically; that is, to optimize the selection solely from the perspective of either space and power or networking, security, cloud access, managed services, etc.” said Bob Gill, research vice president for Gartner. “Involve people from related parts of the business to participate in question generation as well as vetting the responses when they come in. We use a template that includes these many perspectives to ensure we don’t optimize, say, for cost at the detriment of feature flexibility or future cloud plans.”

Supplemental Information

Comprehensive analysis begins with clarifying the submitted proposals. Prudent users should prepare detailed follow-up questions to address any responses that lack specificity or are ambiguous. Users can also request copies of supplemental drawings, exhibits, or photos if needed to better understand the colo data center designs and capabilities. This is not the time to gloss over missing or vague information, as overlooking a deficiency at this point in the process could be costly later.

Tours and Interviews

Facility tours are an important part of the selection process. Despite improvements in “virtual tours” following the onset of COVID, enterprises should tour and closely scrutinize the finalist data centers to verify that facility designs and deliverability meet project needs. Facility tours also offer the opportunity to meet and evaluate the colo providers’ personnel responsible for effectively providing the data center solution sought for the project.

Users should ask questions about the providers’ standard operating procedures (SOPs) to verify that planned practices conform to the proposals received and confirm that facility managers fully understand and implement those tasks with the experience and knowledge required for the job. Ask for a demonstration of monitoring systems in the NOC, and watch how the on-site team responds to impromptu questions about nonstandard situations that often arise in the management of any critical facility. Honesty and responsiveness in handling reasonable questions are essential.

Users are also encouraged to request some informal socializing with the provider’s team to get to know them, such as a shared lunch in the break room or a community beverage at the end of the tour day. Some enterprises seek a buttoned-down, military-like posture from the provider’s team, while others seek a more congenial “let’s work it out together” model. Personality compatibility goes far toward fostering a good long-term working relationship.

Densities and Private Suites

While average cabinet density is about 9 kW, 16% of most commonly deployed new cabinet densities for enterprises exceed 20 kW according to a recent industry survey. Prescient users should therefore confirm the maximum cooling capacity for both a pod of 20 to 40 adjacent high-density cabinets and the entire proposed customer premises. It’s also important to ask providers what containment systems are employed and, if cabinets consuming more than 30 kW are planned, what specialty heat rejection options, such as rear-door liquid cooling, are available.

Many large enterprises are seeking dedicated colocation suites and should therefore ask if a dedicated private suite (rather than cage space in a multi-customer data hall) is available with dedicated electrical and cooling systems that are not shared with other customers.

Is There Room to Grow — or Shrink?

As enterprises plan their migrations out of legacy, on-premises data centers into a combination of colocation and cloud environments, many users are seeking flexible solutions that can evolve to meet their needs. Ffacility closures and public cloud adoption don’t necessarily happen at the same time, which is why astute users should choose colo facilities that offer both expansion and contraction rights.

Some colocation campuses with many data suites across adjacent buildings accommodate modular growth and contraction more easily than others. In the largest markets, multiple colo data centers have available suites with ample power scalability for future densification. However, in some of the tighter markets (like Los Angeles) and mid-sized metro areas, there may be only one or two colocation providers that can immediately provide sufficient space and power for current needs plus future expansion options.

Environmental Awareness

Many corporate users are focusing on global environmental impact, including C-Suite scrutiny into data center efficiency and carbon-footprint impact. While cutting-edge cooling designs have significantly lowered PUE ratios, users should verify the actual measurements at operational facilities under realistic load scenarios and seek contractual guarantees of claimed PUE metrics. For example, some colocations promote a PUE of 1.25 while assuming 90% utilization of design capacity, while actual loads are running at 40 to 70% of capacity and delivering weaker PUEs, closer to 1.45.

Many public-facing corporations are also focused on the energy source for their electricity, so leading data center operators should be quizzed about the availability of 100% renewable (or mostly renewable) power plans, which are now only 3 to 10% more expensive than traditional mix plans in most regions.

Reliability

Corporate users frequently seek uptime improvements when migrating from older, self-operated data centers. While many colo providers claim 100% uptime in their marketing materials, wise users should review critical systems designs at finalist colo facilities to assess the realism of lofty uptime goals. Users should review electrical one-line drawings to verify redundant power paths from the utility handoff to the cabinet and engage outside consulting engineers to assess those designs if necessary.

Providers’ claims that their facilities comply with industry-standard design tiers, like those promulgated by the Uptime Institute, should be scrutinized. While many new colo data centers incorporate concurrently maintainable infrastructure principles, most colo facilities do not have formal tier certifications. Some colos with one tier design deviation — usually elected to reduce construction or operating costs — would preclude obtaining a higher tier certification unless modified. The Uptime Institute is clear that there is no such thing as “almost Tier III,” so users should confirm the exact critical systems designs being proposed.

SLAs and Reliability

Colocation proposals include service level agreement (SLA) metrics and compensation for missing performance thresholds. In evaluating proposals, SLA performance terms should mirror the uptime claims of the provider. Savvy users recognize SLA credits are, at best, weak compensation for reliability problems, as they rarely come close in value to the operational and reputational costs of outages — 24% of which were rated severe, serious, or significant in a recent user survey. “Give me more downtime so I can get the credits,” said no data center manager ever.

Users should review data on historical downtime events at the proposed facility during the previous three years to learn if real-world performance mirrors the provider’s uptime claims. Further, this inquiry encourages the provider to demonstrate how they learn from mistakes and gives insight into their willingness to adjust procedures to prevent future incidents.

Telecom

Telecom interconnectivity is one of the most valuable benefits of colocation occupancy, since many colo facilities have far more network choices than the average legacy, on-premises data center. Because interconnectivity and cloud adoption are becoming critical to most enterprise users, they should seek confirmation of available telecom options in four important ways.

Evaluate the number and true redundancy of lit fiber optic networks “on net” in the colocation meet-me room by verifying that each lit provider has its own last-mile entrance onto the colo property, plus redundant intra-city networks connecting back to the long-haul interconnects at the local carrier hotel.

If dark fiber is desired to connect directly to specific carrier POPs in local carrier hotels to reduce costs, verify the dark fiber options adjacent to each colo facility.

Inquire if cloud connection circuits like AWS Direct Connect or Microsoft Azure ExpressRoute are installed and available. Users can also ask if the public cloud providers have leased space on the colo campuses under consideration, which can ease future migration into public cloud — and back from cloud if unbudgeted costs are too high — by procuring colo at those locations.

If software-defined network (SDN) platforms are desired, users should verify their on-site availability, especially if multi-cloud adoption or ultra-fast 100 Gbps circuits are required. While Megaport indicates more than 700 “enabled” data centers worldwide, only about 60% of those are considered “installed,” so users should understand exactly what SDN options are available now.

Managed Services

Almost all colo providers offer basic smart hands services like reboots, cable or tape swaps, and server builds. More comprehensive managed services vary widely by location and provider. While some of the largest national data center providers supply large colo suites very affordably, they often lag behind mid-sized providers in tailoring managed services to meet specific customer needs.

Enterprises requiring advanced managed services, especially for private cloud, disaster recovery as-a-service tools, or security solutions (like denial-of-service mitigation), should carefully vet the providers’ expertise in providing those services. Some colo providers deliver managed services executed by their own badged staff, while others bring in third-party firms to more effectively deliver managed services, which can reduce “one-throat-to-choke” service-provider accountability.

Because control, audit, and compliance are often cited as due diligence categories favoring colocation over public cloud, users with specific concerns around those topics should verify the services proposed to address their concerns as delineated in the RFP. Users in highly regulated industries, like financial services, health care, energy, and utilities, should inquire about references as well as specific audit and compliance programs related to their industries.

Seeking Stability

Users should determine if there are any financial stability risks for prospective colo providers. Several of the largest providers are publicly traded, so their quarterly financial statements can be easily reviewed. Most other national providers also have manageable debt levels — in many cases having raised hundreds of millions in equity to fund their data center portfolio growth.

Local and regional colo providers often warrant further study, even though colo providers rarely go out of business. Review each provider’s financial statements as provided in their proposals, engaging internal financial analysts to assist in underwriting the financial strength of the provider if necessary. Discerning users should also evaluate the industry experience of the colo provider’s senior management.

Dollars Making Sense?

No evaluation of colocation proposals is complete without a detailed financial analysis of costs. Enter the proposed line-item costs for space, retail power circuits, cross-connects, managed services, and other miscellaneous fees into a multiyear spreadsheet summarizing the aggregate costs for each finalist provider. PUEs and electricity rates vary among facilities, especially if the candidates are served by different utilities, so metered electricity costs at the planned consumption levels, increased by the appropriate PUE multiplier, should also be included.

Users should project each candidate’s proposed economic terms by year over the contract term using multiple growth scenarios, ideally a “most likely” base case plus “low-growth” and “high-growth” models. Since many enterprises are uncertain how much of their computing might be migrated to public cloud over the next decade, they should evaluate the relative costs of different facilities and proposals under differing quantity models.

Experienced advisors can prepare comprehensive multiyear pricing comparisons across multiple growth and contraction scenarios, providing valuable tools for the user’s selection and budget approval processes. (Additional strategies around colocation cost containment and contract negotiations will be discussed in the final article of this series in next month’s issue.)

Incentives valuation should also be included in a cost comparison, especially when comparing proposals in different geographies, since applicability and value of sales tax incentives, electricity rebates, or property tax abatements can be tie-breakers in the decision process. For example, one of the most attractive data center markets in the Chicago area straddles two counties with significantly varying property tax rates and abatement policies.

Advisor Role

Third-party advisors who are experienced in colocation procurement can provide valuable insight in evaluating colocation providers and proposals. Experienced advisors understand the relative strengths and weaknesses of various providers and provide perspective on the providers’ approaches to scalability and problem-solving. In addition to conserving the project team’s time, advisors can prepare sophisticated scoring and ranking models of colocation facilities, the providers, and the specific proposals submitted during a project.