Data Center Construction: When the Texas Grid Becomes the Critical Path
Austin Attorney Chris Ross examines the rapidly evolving risks facing Texas data center construction in an article published in the August edition of Construction News magazine. As unprecedented power and water demands, long-lead equipment, grid interconnection delays, and increasing local regulation reshape the critical path, Chris explores what contractors need to consider when allocating risk and negotiating project contracts. He also highlights why addressing these challenges up front can help contractors better manage delays and avoid costly disputes.
For the typical construction project, the critical path primarily runs through the jobsite. For a data center, which can draw as much electricity and water as a small city, the path runs through ERCOT (the “Electric Reliability Council of Texas”). As of July 2026, ERCOT is tracking more than 438 gigawatts of grid interconnection requests, and nearly 89 percent of those requests come from data centers. That is a staggering number. For scale, the entire ERCOT grid peaked at 85 gigawatts in 2023.
Water procurement adds more complexity. A Research Center analysis found that Texas data centers already consume 25 billion gallons of water a year—a figure that could grow to 160 billion gallons by 2030, representing roughly 3 percent of Texas’s total use. Data centers generate massive amounts of heat from densely packed servers and electrical equipment and require water for cooling in a closed-loop system. For a state already struggling with water consumption, local water-service agreements are proving difficult to negotiate.
The equipment side poses its own unique challenges. Lead times for large power transformers exceeded 160 weeks in early 2026, while high-voltage circuit breakers took 125 weeks to procure. Utilities are buying equipment three to five years ahead of schedule. Complicating matters, local city councils are taking action to prevent data center construction entirely.
For a contractor running a schedule, delayed equipment, unresolved water agreements, stalled grid interconnection, and related permitting delays all contribute to project delays, with the potential for significant exposure to general conditions and liquidated damages.
SB 6 and ERCOT
For background, Senate Bill 6, signed into law on June 20, 2025, put the first regulatory framework around large-load interconnection in Texas. Any project seeking 75 megawatts or more of new grid capacity must clear certain hurdles: among other things, an initial transmission fee of at least $100,000, proof of site control, disclosure of substantially similar service requests, and financial commitment requirements for transmission infrastructure needed to serve the large load.
ERCOT’s “Batch Zero,” approved on June 18, 2026, is how that framework now works in practice. Instead of allocating projects one at a time, Batch Zero groups qualifying 75-plus-megawatt projects together in “batches.” ERCOT expects to notify applicants of their status by August 2026, with a final transmission plan due in fall 2027.
Stargate Data Center
The Stargate data center campus outside Abilene illustrates the massive scale of these projects. The $500 billion nationwide project, backed by OpenAI, Oracle, and SoftBank, is building a 1,100-acre, four-million-square-foot campus expected to house millions of GPUs. The city of Abilene granted the developers an 85 percent property tax abatement over ten years to finalize construction.
Rather than go exclusively through ERCOT, the developers applied for permits for 360 megawatts of on-site gas power generation, later bought another 4.5 gigawatts of power capacity, and announced a 600-megawatt grid expansion large enough to power roughly half a million homes.
Project contractors must sequence natural gas turbines and related electrical equipment alongside data center construction. Turbines alone are effectively sold out through 2028—GE Vernova, a key beneficiary, has a record 100-gigawatt backlog. Standard equipment procurement is now a high-stakes, multi-year, critical-path process driven by a massive surge in power requirements and a severely constrained supply chain and grid.
Local Government
Because data center construction impacts Texas communities, local governments are increasingly becoming more involved. In San Marcos, the city council voted 4-3 in June 2026 to ban data centers after denying a service agreement for a facility that would have used 70,000 gallons of water per day.
Fort Worth proposed rules requiring 250-foot setbacks from residential property, closed-loop cooling, and permits for wastewater pretreatment. Hill County also attempted to pass a data center moratorium in May 2026, rescinding it a month later after a developer sued for $100 million. The County replaced the moratorium with a compliance checklist.
Local government delays and related moratoriums directly impact the construction schedule. Contractors that mobilize crews and commit to long-lead equipment may bear the risk if the approval process is derailed by a local council vote.
Impact on Contractors
For contractors, the name of the game is risk allocation. Thankfully, owners are increasingly using early procurement packages, standalone purchase orders, and separate equipment provisions before finalizing the full construction contract.
Once finalized, construction contracts should clearly identify which party bears the risk of grid delays, utility approvals, water-service agreements, and related permitting delays. If those items are controlled by the owner or a separate entity, the contractor should not become the unintended insurer of those risks through broad general conditions or liquidated-damages language.
While EPC (“Engineering, Procurement, and Construction”) and design-build contracts may offer efficiency and a single point of responsibility, they become much riskier when the contractor assumes responsibility for procurement and grid delays. EPCM (“Engineering, Procurement, and Construction Management”) and hybrid structures give owners more procurement flexibility, but if the owner controls key deliveries, it should also own the corresponding coordination and risk.
The same care must be taken with substantial completion clauses. Given the complexity at play, contractors should avoid definitions that make substantial completion conditioned on the owner’s ability to operate a fully functioning data center and instead limit the clause to the scope of the contractor’s work. Liquidated damages clauses should also be tied to milestones the contractor can control. Excusable or compensable delays should be specified, and dispute provisions can help keep the project moving—continue-to-perform clauses and reservations of rights can help preserve progress without waiving claims.
So too with Force Majeure (“FM”) clauses. A standard FM clause might include natural disasters or other so-called “Acts of God.” But in data center construction, contractors should include utility interconnection and grid-related delays in FM clauses, as well as state and local government moratoriums in the event of political pushback.
The takeaway for contractors is straightforward: the risk profile has changed. Power, water, and long-lead equipment items are no longer peripheral development issues; instead, they have become part of the critical path. Fundamentally, data center projects will succeed where power, water, and procurement risks are addressed before mobilization. Contractors should research and weigh their insurance options and seek specialized coverage, such as systems integration coverage. In a Texas construction market increasingly shaped by data center demand, careful front-end risk allocation may be the difference between a managed delay and a project-defining dispute.
Sources
- ERCOT, “ERCOT Update,” presentation to the Senate Committee on Business & Commerce (Apr. 1, 2026); Reuters, “Texas regulators approve framework to manage data centers’ power demands” (June 18, 2026).
- Houston Advanced Research Center, “Thirsty Data and the Lone Star State: The Impact of Data Center Growth on Texas’s Water Supply” (Jan. 2026).
- Reuters, “US power companies scramble to secure equipment as surging data center demand strains supplies” (July 9, 2026).
- The Texas Tribune, “Texas county pauses data center construction in rural areas” (May 12, 2026); The Texas Tribune, “Texas county rescinds data center moratorium after lawsuit” (June 5, 2026).
About the Author
Chris Ross is an attorney in Cokinos | Young’s Austin office, where his practice centers on construction and commercial litigation in state and federal courts. He represents clients in a wide range of disputes involving contracts, project delays, construction defects, payment and lien issues, real estate and other business matters, guiding clients from early case strategy through discovery, mediation, and trial. If you have any questions, Chris can be reached at 512-615-8578or cross@cokinoslaw.com.
About Cokinos | Young
Cokinos | Young has led Texas construction and real estate law for over three decades. And today, our 100+ dedicated professionals operate coast to coast and proudly handle all aspects of construction law for owner/developers, project managers, general contractors, design professionals, subcontractors, sureties, and lenders. We provide both dispute resolution and transactional services to clients through all phases of commercial, industrial, pipeline, offshore, civil, and residential construction. Our reputation was built on relentless commitment to client service and the industries we serve, and that remains our primary driver. Dedicated. Resilient. Expertise. That’s Cokinos | Young. Learn more at cokinoslaw.com.