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Reading a Colocation Proposal: How to Compare Providers on the Terms That Matter

Evaluate • October 27, 2026

Capacity is tight, which raises the stakes on every term in a proposal. CBRE put primary-market colocation vacancy at a record-low 1.4% in H1 2026, with 80.4% of capacity under construction already preleased and asking rates rising in every size band it tracks. In that market the headline rate is the easiest number to compare and the least informative one. Each proposal bundles power, cooling, service levels, growth rights and exit terms differently, so two quotes that look similar can differ by a wide margin over a full term. This article covers what to normalize before comparing, where the risks sit, and when a full comparison is not worth the effort.

Start with one reference design

Send every bidder the same requirement: cabinet count, committed kW, redundancy, bandwidth, cross-connects, growth forecast and term. One practitioner guide recommends separating true requirements from preferences, splitting each quote into one-time and monthly recurring lines, and comparing on a per-usable-kW basis, since a cheaper cabinet with less usable capacity can cost more. Then model total contract value month by month, with escalators, expected usage and exit costs included. If a bidder will not price your reference design, that tells you something too.

Power: where totals diverge

Power is usually the largest variable. Proposals tend to use one of three structures: per-amp (reserved capacity), metered kWh, or a flat rate bundled up to a stated limit. Each has its own trap. Reserved capacity wastes money if headroom sits idle, and you should confirm whether an A/B pair is billed at full rating on both feeds. Metered billing exposes you to rate changes, demand charges and minimum bills. A flat rate is only clear if the limit is defined: breaker rating, kW, kVA or thermal cap, and what happens on overage. Get the contractual kW cap, not the amp rating.

PUE deserves the same scrutiny. Uptime Institute's survey average has hovered in the mid-1.5s for years, 1.56 in 2024, and Uptime's 2025 survey reports little change again. If a proposal cites a figure far below that, ask whether it is a design target or a measured annual value, and at what load. Do not accept a published PUE as a billing multiplier unless the contract defines how it is calculated. Also ask for the ramp: one lease guide suggests negotiating a 6 to 12 month period to grow into committed power without penalty.

Density and cooling

Legacy racks run at 5 to 7 kW, while AI workloads call for 50 to 100 kW, according to Data Center Knowledge's 2026 reporting. Uptime's survey data show the installed base is still below 8 kW on average, with relatively few facilities above 30 kW. So "high density supported" means little until you ask for the per-cabinet kW limit in the contract, the cooling method behind it, whether it applies in the hall you will occupy, and what changes in price and schedule if you need to move up later.

SLA definitions and credit remedies

Read the definition before the percentage. What counts as an outage, what is excluded (force majeure, maintenance, single-circuit failures), whether credits are automatic, and whether they are capped. One guide puts typical credits at 5% to 30% of monthly recurring charges and recommends automatic credits and limits on maintenance windows. Compare those credits with outage costs: in Uptime's 2025 survey, 57% of respondents said their most recent impactful outage cost more than $100,000, and one in five said more than $1 million. Uptime's Owen Rogers made the point about cloud in 2022, but the arithmetic carries over: an SLA is "not an insurance policy". The more useful remedy is often a termination right for repeated failures.

Expansion, escalators and exit

Expansion rights are worth pricing. A right of first refusal gives priority on adjacent space as it frees up; a right of first offer requires the provider to offer it to you before marketing it. The lease guide above recommends naming a specific capacity and pricing it at the contract rate, not the market rate. On escalators, it describes fixed annual steps of 2% to 3%, CPI-linked structures with a floor and cap, and step-ups, and shows how a fixed 3% compounds from $130 to about $175 per kW per month by year 10. Initial terms in that guide run 3 to 10 years, and early termination rights, where available, typically cost 12 to 18 months of remaining rent.

Interconnection and exit fees are easy to miss. Equinix's documentation lists a one-time installation fee for each cross-connect and a deinstallation fee if you end early. The same practitioner guide lists remote hands minimums, after-hours multipliers, deinstallation and restoration among the other line items to price. Ask what moving out costs, who does the work, and how long you keep access to the space while you migrate.

Certifications and audit reports

Ask for the report, not the logo. AICPA describes a SOC 2 examination as an assertion-based review of a provider's system description and controls across five categories: security, availability, processing integrity, confidentiality and privacy. A Type 1 report evaluates design at a point in time; a Type 2 covers operating effectiveness over a period, commonly several months. In practice, check which facility and which categories are in scope, the review period, and any exceptions noted. Whether those match the site you are bidding on is a question only the report answers.

Downsides and risks

  • The lowest price is often the highest cost. A low per-cabinet rate can hide a lower usable kW cap, metered power with a high markup, or fee lines that appear after signing.
  • Hidden fees. Remote hands, cross-connects, deinstallation and utility adjustments are billed outside the headline rate.
  • Lock-in. Multi-year terms, escalators and deinstallation costs raise the cost of leaving, and a migration is a project in its own right.
  • Credits that do not cover the loss. See above: credits are a fraction of monthly charges, and outages can cost far more.
  • The market limits your leverage. In Northern Virginia, CBRE reports that occupiers struggle to find 5 to 10 MW of contiguous space. When few providers can deliver, normalization is mainly about protecting terms, not driving price.
  • When a full comparison is not worth it. For a handful of cabinets on a provider's standard paper, the cost of a formal RFP can exceed the savings. A spreadsheet also misses things that do not normalize, such as how a provider handles change requests or incidents; check references.

What doing it right makes possible

Per a TechTarget account of a 2020 Data Center World talk, issuing an RFP to your incumbent provider tends to make it more willing to improve terms, rightsizing is the most effective cost-reduction tactic since organizations often overprovision, and a smaller commitment can be paired with expansion rights. Comparable terms give you pricing leverage, and contract structure that matches your growth curve. A defined exit lowers migration risk. In a tight market the gains are more likely to come from terms than from rate.

MDI can help with building the requirements-based RFP, scoring every proposal against the same pricing, capability and compliance criteria, and negotiating the SLA through final selection (Colocation RFP & Provider Selection).

Talk to one of our advisors about colocation provider selection

Sources

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