Ordering long-lead equipment for AI data centers

In short

AI data centers demand heavy electrical gear and computing chips that can take years to arrive. Federal tax law allows a full first year write off for equipment placed in service by December 31. Purchase contracts are governed by the Uniform Commercial Code, which fills gaps when order forms clash. A lender who finances equipment can get first priority by filing a UCC financing statement within 20 days of delivery. Imported steel and copper equipment faces Section 232 tariffs as high as 50 percent. Export controls restrict high performance GPUs. We’ll walk through each rule and how it affects early procurement.

What is long lead equipment and why does it matter for AI data centers?

Long lead equipment is the heavy electrical and mechanical gear that a builder must order far in advance because manufacturing takes months or years. In an AI data center, the list includes large power transformers, medium voltage switchgear, backup diesel generators, uninterruptible power supply systems, chillers, bus duct, and the GPU servers that deliver compute.

Lead times in 2026 are extreme.

CPM Pros, The Network Installers

The United States is in the middle of an AI data center building boom. In the first half of 2025, primary market supply hit a record 8,155 megawatts, with only 1.6 percent vacant. Another 5,242.5 MW was under construction, and 74.3 percent of it was already preleased. CBRE Alphabet, Amazon, Meta, and Microsoft together guided for more than $650 billion in AI infrastructure capital spending in 2026.

Consider the Stargate project, a joint venture of OpenAI, SoftBank, Oracle, and MGX. It plans up to 10 gigawatts of AI data center capacity, with a $500 billion commitment. Its first Texas campus is already running 450,000 NVIDIA GPUs and expanding rapidly. Five additional campuses are planned across Texas, New Mexico, Ohio, and the Midwest. OpenAI’s Stargate project could consume up to 40% of global DRAM output. Tom’s Hardware

That demand collides with a supply chain that has very few producers of the most critical parts. The United States can make only about 20 percent of the power transformers it needs. The rest is imported. BIS-2025-0023-0368 The National Infrastructure Advisory Council called the industry’s dependence on foreign-made large transformers a significant national security risk and identified the transformer shortage as threatening grid reliability. CISA

A director at AI data center developer Hut 8 put it plainly. The biggest bottleneck is long lead electrical gear. Switchgear, transformers, and generators are all running extended lead times. A shell can be finished and mechanically roughed in, but if the gear is not on site, you are not energizing. Construction Dive Some developers are so frustrated that they are building their own switchgear to bypass the queue. Crusoe Energy began manufacturing its own switchgear to escape the traditional lead times.

Manufacturers are responding. Siemens Energy is spending more than $1 billion on a new large power transformer plant in Charlotte, NC, with production targeted for 2027. Hitachi Energy is building a transformer facility in Virginia expected to be the largest in the U.S. by 2028. Eaton is investing hundreds of millions in new transformer and switchgear plants. Cleveland-Cliffs announced plans in July 2024 to turn a closed West Virginia plant into a distribution transformer hub but canceled the project in May 2025. Cleveland-Cliffs, Cleveland-Cliffs, Energy News Beat

None of that new capacity will shorten lead times for a project that needs equipment today. Ordering early is the only way to have gear on site when the building is ready.

How do federal tax rules make early equipment orders more attractive?

The Internal Revenue Code gives businesses two powerful tools to deduct the cost of equipment in the year they put it to use. Both apply to new and used tangible personal property, including the machines, computers, and electrical systems inside an AI data center.

First, Section 179 lets a business expense up to $2,560,000 of qualifying equipment cost in 2026. The deduction phases out dollar for dollar once total equipment placed in service during the year passes $4,090,000. It disappears entirely at $6,650,000. The deduction cannot exceed the business’s taxable income for the year. Unused amounts carry forward. 26 U.S.C. § 179(b)(3), 26 U.S.C. § 179(b)(3)

Second, bonus depreciation under Section 168(k) allows a 100 percent first-year write-off of the remaining basis. Under the One Big Beautiful Bill Act of 2025, 100 percent bonus depreciation is now permanent for property acquired and placed in service after January 19, 2025. There is no dollar cap and no income limit. For qualified property acquired after January 19, 2025, a business may instead elect a reduced 40 percent rate. IRS Pub. 946

The standard strategy is to apply Section 179 first up to the limit, then use 100 percent bonus depreciation on the balance, achieving a full immediate deduction. AI data center cooling equipment is generally five-year MACRS property, and power equipment such as UPS systems is seven-year property. Both categories qualify for bonus depreciation. Cost segregation analysis, IRS Form 4562 instructions

A real example. A developer orders $10 million of medium voltage switchgear and places it in service by December 31, 2026. Because total equipment placed in service exceeds $6,650,000, no Section 179 deduction is allowed. The entire $10 million is fully deducted under 100 percent bonus depreciation. The entire $10 million reduces taxable income in year one.

Timing controls everything. The equipment must be placed in service, meaning delivered, installed, and ready for its intended use, by the last day of the tax year. If it arrives in January, the deduction slips to the next year. Written confirmation of delivery and in service dates is essential audit support. Baldwin CPAs

One caution. Many states do not conform to federal bonus depreciation and cap their own Section 179 thresholds lower. Kentucky is one example. Developers should keep separate federal and state fixed-asset ledgers. Baldwin CPAs

Early ordering is a supply chain move. It is also a tax planning move. Locking in a manufacturing slot in early 2026 so the equipment arrives and is commissioned before the year ends can produce a full first-year write-off worth millions in current tax savings.

What contract rules apply to equipment purchases under the Uniform Commercial Code?

Equipment is goods under Article 2 of the Uniform Commercial Code, adopted in all 50 states. The UCC fills gaps when the parties exchange purchase orders and acknowledgment forms but never sign a single master agreement.

A contract can be formed by conduct that shows agreement, even without a signed document. UCC § 2-204 But that looseness is dangerous on a multi-million-dollar order.

The classic problem is the battle of the forms. A buyer sends a purchase order with its terms. The supplier sends back an acknowledgment with different terms. Under UCC § 2-207, a contract is formed if the acknowledgment is definite. Between merchants, the additional terms become part of the contract unless the offer expressly limits acceptance to its terms, they materially alter it, or notification of objection to them has already been given or is given within a reasonable time after notice of them is received. UCC § 2-207, Knockout rule analysis

A material alteration is one that changes price, payment terms, warranties, remedies, indemnities, governing law, or attorney fee provisions. If the supplier’s acknowledgment adds a clause disclaiming warranties or limiting liability, that is likely material. If the buyer’s purchase order is silent on those points, the supplier’s clause might get in. If the forms conflict, both conflicting terms are knocked out and the UCC’s default gap fillers take over.

For expensive, custom built equipment, a developer should never rely on form exchanges. One signed master agreement that addresses price, delivery, warranties, remedies, force majeure, and governing law avoids the battle entirely.

The UCC also requires that a contract for goods priced at $500 or more be evidenced by a writing signed by the party against whom enforcement is sought. UCC § 2-201 Exceptions exist for specially manufactured goods and for admissions in court, but the safe practice is a signed writing.

A merchant who makes a firm offer in a signed writing can be held to it for up to three months without separate consideration. UCC § 2-205 A developer negotiating a transformer order can use this to lock price while finalizing design.

If a supplier appears financially shaky or its production lines are disrupted, the buyer may demand adequate assurance of due performance in writing under UCC § 2-609. The buyer may, if commercially reasonable, suspend any performance for which it has not already received the agreed return until it receives that assurance. UCC § 2-609 In the current market, suppliers are strained and some are demanding large upfront payments to hold slots. Contract considerations UCC Section 2-609 allows a party to demand adequate assurance of due performance when reasonable grounds for insecurity arise about a counterparty’s performance. UCC adequate assurance analysis

How can a lender secure its interest in equipment ordered early?

When a lender finances a specific piece of equipment, a purchase money security interest, or PMSI, gives it priority over other creditors, including earlier blanket lenders, if the lender follows the rules of UCC Article 9.

A PMSI exists to the extent the loan proceeds are used to acquire the collateral. UCC § 9-103(b)(1) For equipment that is not inventory, the lender gets super-priority if it perfects the security interest when the debtor receives possession of the equipment or within 20 days afterward.

The lender must file a UCC-1 financing statement in the correct state office. No special purchase-money language is needed on the form, but for a registered organization debtor, the debtor name must match the public organic record for a registered entity. The security agreement must include a granting clause and a description that identifies the equipment, typically by make, model, or serial number. NCS Credit, UCC security agreement requirements

Pre-filing the UCC-1 before delivery is common and advisable. The 20-day clock starts when the debtor physically receives the goods, not when title passes. So if a transformer is delivered to the job site on October 1, the lender must file by October 21.

Multiple items can be covered with one UCC-1 filing if each is adequately described. The lender bears the burden of proving each element of the PMSI, namely that credit was extended, that it enabled the debtor to acquire rights in the specific collateral, and that perfection was timely. Tracing the loan proceeds to the specific equipment purchase is essential. CSC webinar

In practice, this means a developer who draws on a construction loan to buy switchgear must ensure the loan documents clearly link the advance to that purchase, and the lender must file the UCC-1 quickly once the gear arrives.

What tariff costs hit imported electrical and computing equipment?

Imported equipment that contains steel, aluminum, or copper can face steep Section 232 tariffs. As of April 2026, the rates are as follows.

Trade analysis

Since April 6, 2026, the tariff applies to the full customs value of the imported product, not only the metal content. Trade analysis This change dramatically raises the cost of heavy electrical gear.

There is a de minimis exception, namely derivative products whose aggregate steel, aluminum, and copper weight is less than 15 percent of total product weight are exempt. Trade analysis

GPU boards and accelerator cards are explicitly excluded from the derivative product lists, so they do not face these tariffs. Major power infrastructure components such as large diesel backup generators, UPS systems, switchgear, cooling systems, and power distribution units are not listed on the derivative product list as of April 2026 but are included in Annex III of the proclamation, where they receive a temporary reduced tariff rate through December 31, 2027. CSIS analysis, White House Annexes, White House proclamation Their classification can still be complex, and the primary metal article rate may apply if they are principally metal.

Transformers are heavily affected. The U.S. imports over 80 percent of its large power transformers, and the tariff can raise the landed price by 50 percent on the full customs value. On a $1 million transformer, that adds $500,000. The temporary 15 percent rate on electrical grid equipment may apply to certain transformers and switchgear, but developers must confirm eligibility with customs counsel.

Separately, the U.S. Supreme Court invalidated the IEEPA tariffs on February 20, 2026. Legal analysis The administration replaced them with a temporary 10 percent Section 122 tariff for 150 days. Morgan Lewis analysis The scope and duration beyond that window is not yet settled. Global Trade Alert analysis

The takeaway is to budget for a material tariff line item on imported electrical equipment. Domestic sourcing can avoid Section 232 tariffs entirely, but domestic lead times are often the longest. The math frequently forces a choice between speed and cost.

Do export controls restrict the GPUs that power AI data centers?

Yes. High performance GPUs are controlled under the Export Administration Regulations. ECCN 3A090.a controls integrated circuits with total processing performance of 4800 or more, or with performance of 1600 or more and a performance density of 5.92 or more. Advanced computing ICs meeting the ECCN 3A090.a parameters fall into this category and are subject to a worldwide license requirement, with license exceptions available for certain destinations and end users. Federal Register

A companion control, ECCN 3A090.c, covers high bandwidth memory stacks with memory bandwidth density greater than 2 gigabytes per second per square millimeter. All HBM stacks currently in production exceed this threshold, so they are controlled as well. Trade alert

In January 2025, the Biden administration issued the AI Diffusion Framework rule that imposed worldwide licensing on advanced GPUs, created a tiered country system, and introduced new license exceptions. That rule was rescinded on May 13, 2025 by the Trump administration. A replacement is expected but had not been issued as of this writing. GPU export controls analysis

Even without a physical export, AI data center operators who host GPU servers for tenants can face export control liability. If restricted GPUs, controlled technology, or end users on the BIS Entity List are present in their facilities, the operator may be at risk. Civil penalties can reach roughly $370,000 per violation or twice the transaction value. Criminal penalties can reach $1 million and 20 years imprisonment. GPU export controls analysis

This means a colocation provider must screen its tenants’ hardware and beneficiaries. A simple lease to a foreign entity that brings in restricted chips could expose the landlord. For developers buying GPUs directly for their own use, the compliance path is clearer. Obtain the necessary licenses for any intended export, and know your supply chain.

How do executive orders affect equipment procurement and site permitting?

Two executive orders have shaped federal rules for AI data center infrastructure.

President Biden’s Executive Order 14141, issued on January 14, 2025, directed the Secretaries of Defense and Energy to identify federal sites for frontier AI data centers and required lessees to bear all construction and operational costs, including transmission upgrades. It also called for procurement of domestically fabricated semiconductors and matching clean energy generation. Federal Register That order was revoked on July 23, 2025. Its clean energy definition, which includes nuclear, solar, wind, hydro, and carbon capture with 90 percent capture, remains a useful reference for projects that voluntarily pursue clean power matches.

The current operative order is the Trump Administration’s July 2025 Executive Order on Accelerating Federal Permitting of Data Center Infrastructure. It defines a Data Center Project as a facility requiring more than 100 megawatts of new load dedicated to AI inference, training, simulation, or synthetic data generation. It directs the Secretaries of the Interior and Energy to identify and authorize suitable federal land sites, directs the Secretary of Defense to identify suitable sites on military installations and competitively lease them for qualifying projects, and calls on agencies to streamline permitting under the National Environmental Policy Act and the FAST-41 program. White House

The practical effect for equipment procurement is indirect but real. Faster federal permitting compresses the overall project schedule, which increases the pressure to order long lead equipment even earlier so it arrives when the site is ready. A developer that secures a federal land lease in 2026 may need to have ordered transformers in 2025 to energize on time.

How should contracts allocate risk for supply delays and equipment defects?

The supply chain crisis has shifted standard risk allocations. Three specific areas demand careful contract drafting.

Force majeure. U.S. courts treat force majeure as a matter of contract. Supply chain disruptions are not automatically covered. A force majeure clause can protect against supply chain disruptions, especially if it specifically mentions them. Generic language about acts beyond control may not excuse a delay that was foreseeable. Contract analysis The party claiming force majeure must show the delay was unavoidable despite reasonable mitigation. Price increases alone, without true impossibility, are generally not force majeure. A separate price escalation clause should address tariff and commodity cost changes. Contract analysis

Free issued equipment. Developers often buy long lead equipment directly and hand it to the general contractor for installation. This shortens the schedule by letting the owner order equipment before the construction contract is signed, and it avoids the contractor’s markup on items that can be 40 to 60 percent of project cost. LinkedIn analysis But under standard construction-contract language, the owner bears the risk of latent defects that are not visible on inspection. To shift that risk to the contractor, the developer must amend the contract with express language. LinkedIn analysis

Upfront payment risk. Suppliers of scarce equipment are demanding larger upfront payments and accelerated schedules. This is a departure from the old model where suppliers extended credit until after delivery. Lenders must approve these accelerated payment schedules. Contract considerations

Hidden schedule risk from AHJ review. Authority Having Jurisdiction submittal to approval cycles routinely run 30 to 45 days, not the 10 days many schedules assume. A submittal issued at month four that takes 42 days pushes the manufacturer’s production clock back by a full month. That can cascade. CPM Pros

A 2026 procurement checklist from a national law firm recommends that AI data center agreements include clearly defined service levels and uptime commitments, remedies tied to operational impact, supply chain resilience provisions requiring vendor advance notice of material changes, appropriate force majeure and delay-risk allocation, and exit and substitution planning. Procurement checklist

Key takeaways

• Order large power transformers two to three years ahead, switchgear and generators one to two years ahead.
• Place equipment in service by December 31 to capture 100 percent bonus depreciation and Section 179 expensing.
• Use a single signed master agreement rather than exchanging purchase orders and acknowledgments to avoid the battle of the forms.
• File a UCC-1 financing statement before delivery and within 20 days of the debtor’s receipt of possession to perfect a purchase-money security interest.
• Budget for up to 50 percent Section 232 tariffs on imported electrical equipment that contains steel, aluminum, or copper. Confirm whether the temporary 15 percent rate on grid equipment applies.
• Screen GPU purchases and tenants for export control compliance. A data center operator can face penalties even without a physical export.
• Draft force majeure clauses to expressly cover supply chain disruptions and tariff changes. Pair with a price escalation clause.
• When free issuing equipment to a contractor, amend the contract to shift latent defect risk to the contractor.

Frequently asked questions

Q:What is the lead time for a large power transformer in 2026?

A:Standard large transformers of 50 megavolt amperes or more take 80 to 128 weeks. Custom units can reach three to five years. Generator step up transformers average 144 weeks. The Network Installers

Q:Can I deduct the full cost of a $5 million generator in the year I buy it?

A:You can deduct the full cost if the generator is placed in service before January 1 of the following year. The first $1,650,000 falls under Section 179 (reduced from $2,560,000 by the phase-out that begins above $4,090,000). The remaining $3,350,000 is fully deductible under 100 percent bonus depreciation. The Section 179 deduction is subject to taxable income. Section179.org, IRS Topic No. 704

Q:Do I need a signed contract before ordering equipment?

A:A contract can be formed by conduct alone, but a signed writing protects against disputes and satisfies the UCC statute of frauds for goods priced at $500 or more. It also avoids the battle of the forms. UCC § 2-201

Q:How do I protect my lender’s security interest in equipment?

A:For a purchase-money security interest in equipment to obtain priority, file a UCC-1 financing statement in the correct state when the debtor receives possession of the equipment or within 20 days thereafter. The filing must indicate the collateral, and for a registered organization debtor, the name must exactly match the public organic record. UCC § 9-502(a), UCC § 9-503(a)(1)

Q:Are imported transformers subject to tariffs?

A:Yes. Section 232 tariffs on steel, aluminum, and copper can apply. The general rate is 50 percent on articles made entirely or almost entirely of steel, aluminum, or copper, but certain electrical grid equipment may qualify for a temporary rate of the higher of 15 percent or the normal MFN rate through January 1, 2028. Trade analysis

Q:Do export controls apply to GPUs installed in my AI data center?

A:Yes. High performance GPUs under ECCN 3A090 carry export licensing requirements, though various license exceptions are available. An AI data center operator can face liability if restricted GPUs or sanctioned end users are present in its facility, even through a tenant. GPU export controls analysis

Q:What happens if my supplier cannot deliver because of a factory shutdown?

A:Force majeure may excuse the contractor only if the contract specifically includes supply chain disruptions within the force majeure clause. Generic language like acts beyond control may not cover supply chain disruptions, which are arguably foreseeable in today’s market. Contract analysis

Q:How does the Trump administration’s permitting executive order help?

A:It directs federal agencies to speed up environmental reviews and land leases for AI data center projects over 100 megawatts, which can shorten overall project timelines. White House

Q:What is the biggest hidden delay in equipment delivery?

A:AHJ review cycles. A submittal that takes 42 days instead of the budgeted 10 days pushes out the manufacturer’s lead time start by a month. Many schedules underestimate this. CPM Pros

Q:Should I buy equipment directly and give it to the contractor?

A:Doing so can save time and the contractor’s markup, but the standard contract makes you responsible for latent defects. You must amend the contract to transfer that risk to the contractor. LinkedIn analysis

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.