Viewpoint: Second-Hand Risk – The Growing Threat of Used Equipment in Data Centers

As data center construction accelerates across the U.S. and globally, the conversation has rightly focused on environmental impact and land use. But there is a less viable risk accumulating in the supply chain that we believe risk managers would do well to examine – the growing use of second-hand, refurbished and old stock electrical equipment in critical infrastructure projects, which raises questions around operational resilience, governance frameworks and insurance liability.

Why this is happening and why it matters

We’re seeing this trend being driven by a global surge in demand for data centers, particularly in the North America market, fueled by the increasing adoption of artificial intelligence and cloud computing, alongside continued migration to software-as-a-service (SaaS) and the Internet of Things (IoT). According to Program’s report: Measuring the Data Center Boom: Facts and Statistics (2026), there are 11,426 data centers in operation across 79 countries, with the US holding the lion’s share (4,280).

However, existing utility systems can only partially support this global demand, and utility companies often cannot consistently guarantee an uninterrupted supply. Some of these firms are also known to enforce higher rates and restrictive contractual terms, such as forward purchasing of power regardless of whether it is ultimately used.

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As a net result, many data centers operators are now installing their own power supply systems, either as a primary supply or back-up, using utility-scale generating equipment including combustion gas turbine generator sets, large transformers and high voltage electrical switchgear.

A small pocket of suppliers serves the market for such equipment, many of whom have been operating at manufacturing capacity now for several months or even years. However, data centers go up fast, and developers can’t afford to wait. Many firms are looking to unconventional routes, including the use of ‘grey’ markets not associated with an original equipment manufacturer (OEM) to supply used or refurbished equipment. Others may source old stock equipment already manufactured or supplied for cancelled orders.

For risk managers, this is not merely a procurement issue, but a governance and operational risk one – a risk that can materialize quickly and with significant financial consequence.

Key risks for consideration

Sourcing equipment via these routes adds risk both to the developers and project insurers. The practice obscures the certainty that the equipment is fit for service, performs in a reliable manner and is consistent with a newly supplied unit.

Previously used equipment may also have been exposed to abnormal operating conditions such as overload, imbalances, high vibration levels, high temperatures or an out-of-phase state.

Misuse can often leave no apparent damage. However, even if it is not evident, there likely will have been some impact on the machine, such as material degradation or a diminished resilience to future operating parameter excursions. This is particularly the case for large-scale electrical equipment such as transformers, where potential damage is buried deep within the unit and may not present itself during inspection or refurbishment.

Further issues could arise if the piece has been amended with site-specific design features. Examples may include modifications for environmental conditions such as temperature, humidity, pollution, contaminants or adaptations to meet local site-specific demands for quality of electrical supply, trip conditions or ramp rate. How machinery and equipment have been sourced, stored and maintained are key determinants of their efficacy and safety. The old sailing adage that ‘ships and men rot in port’ applies here. Anything that has been stored in improper conditions for a long period of time will be subject to degradation via corrosion or contamination.

For risk managers assessing the asset’s condition, the question is not just how old a piece of equipment is, but what has happened to it in the interim.

In addition to its physical age, previously used equipment has already been exposed to various risk factors that may affect its future performance. Variables to consider, include:

• The actual time it has been used (e.g., the actual fired hours for a gas turbine generator set)
• The number of times it has been subject to start and stop.
• The cadence with which it’s been loaded (steady versus cyclically)
• When was it last subject to operation
• Why was it removed from service

The question of value

From a risk management perspective, the proliferation of used equipment presents an acute challenge for insurers in the event of a loss. Assessing the value of a piece of machinery with an opaque provenance is inherently complicated by uncertainties in:

• Replacement cost value – In most instances, the purchase price will never reflect the true replacement cost value of the item. This is particularly troublesome for insurers in the event of a partial loss requiring repair of the machine rather than replacement in its entirety.
• Availability of spare parts – Some manufacturers may refuse to deal with equipment that has not been supplied by them or has been installed and maintained through their approved network. This can bring additional costs, delays and/or limit the availability of support or capacity to perform repairs in the event of damage.
• Warranty – Most manufacturers will provide warranties for newly supplied equipment for a pre-determined time, either from the date of arrival on site or from the date of first energization. It is unlikely that any supplier of used or refurbished equipment will provide similar or equivalent terms. This leaves a gap in responsibilities in if damage and/or failure occurs and raises potential for dispute with insurers.

What risk managers can do

With data center construction continuing at pace, used equipment of questionable quality, safety, duration and value will only become more prevalent. What’s apparent is that the risk does not sit only with developers or contractors – it touches on operators, asset owners and their insurers. And for risk managers, this means it is key that they engage with these issues at the project governance stage rather than after an incident has occurred.

Risk managers have a clear role to play here. By working closely with their specialist construction and engineering insurer, they can assess the breadth of risk these components carry, ensuring they’re data operations are adequately covered and able to function at full capacity in the months and years to come.