MEMORANDUM
PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
TO: Douglas Fairchild, Responsible Partner, Real Estate, Calderwood & Harkness LLP Leonard Castellano, EVP, Development, Ironhaven Data Centers LLC
FROM: Cynthia Ho, Lead Associate, Real Estate, Calderwood & Harkness LLP
DATE: Draft — October 2025
RE: Key EPC Negotiation Issues — Stonebridge Data Center Campus — EPC Agreement with Titan-McAllister Construction Group, LLC
MATTER NO.: 1043-00002
COPIES: Angela Fontaine (Calderwood & Harkness LLP); Grace Nakamura (Calderwood & Harkness LLP); Priya Dasgupta (CFO, Ironhaven Data Centers LLC); Diane Prescott (Kestrel Infrastructure Advisors, LLC — Owner's Representative)
I. Introduction and Purpose
The purpose of this memorandum is to analyze and summarize the principal open negotiation issues in the draft Engineer-Procure-Construct Agreement (the "EPC Agreement") between Stonebridge Campus Holdings LLC ("Owner" or "SCH"), a single-purpose Virginia limited liability company and wholly owned subsidiary of Ironhaven Data Centers LLC ("IHDC"), and Titan-McAllister Construction Group, LLC ("TMCG" or "Contractor") for the design and construction of the Stonebridge Data Center Campus located in Loudoun County, Virginia (the "Project"). This memorandum is prepared for the benefit of the deal team and is intended to facilitate discussion and decision-making in connection with the remaining negotiation sessions prior to execution of the EPC Agreement.
Project Overview. The Project consists of the ground-up development of a 96 MW critical IT load data center campus comprising four data center buildings (Buildings A through D, each approximately 120,000 square feet of shell area and designed to support 24 MW of critical IT load), a central utility plant ("CUP"), site civil work, structured parking, and related improvements. The campus will total approximately 480,000 square feet of gross floor area across 81.4 acres, comprising the combined Stonebridge Parcel and Meridian Parcel. Each building will be configured with a 2N diesel generator arrangement to provide full redundancy for the critical power infrastructure.
Contract Price. The parties are negotiating a Guaranteed Maximum Price ("GMP") of $412,000,000 for the full scope of work under the EPC Agreement. The contract is structured on a cost-plus-fee basis with a GMP ceiling, placing the risk of cost overruns above the GMP on TMCG, subject to Owner-approved change orders and specified risk-transfer provisions discussed in detail below.
Execution and Construction Timeline. The target date for execution of the EPC Agreement is October 20, 2025, with issuance of the Notice to Proceed ("NTP") targeted for November 1, 2025. The construction duration from NTP through final Substantial Completion (Building D) is 24 months, with phased Substantial Completion milestones for Building A on August 1, 2027 and Buildings B through D on November 1, 2027.
Construction Financing and Coordination. The EPC Agreement must be closely coordinated with several related transaction documents. Most significantly, the Project is financed by a $390,000,000 senior secured construction loan facility (the "Construction Loan") led by Summit National Bank, N.A. as Administrative Agent, with Cascade Commercial Lending Corp. and Harborview Trust Company as co-lenders (the "Construction Lenders"). The Construction Loan Agreement requires collateral assignment of the EPC Agreement to the Construction Lenders under an Assignment of Contracts, Permits, and Approvals. Accordingly, the EPC Agreement must satisfy lender requirements with respect to enforceability, assignability, and substantive protections including, among other things, liquidated damages, insurance coverage, and bonding. In addition, the EPC Agreement must be coordinated with the Large Load Service Agreement ("LLSA") between SCH and Vantage Power Cooperative ("VPC") for the delivery of utility-grade electrical power to the campus, and the Line Extension Funding Agreement between IHDC and VPC governing the construction and funding of electrical infrastructure to serve the site.
Key TMCG Contacts. The primary contacts at TMCG for negotiation purposes are Raymond Okafor, President of TMCG, and Michelle Tran, Senior Vice President, Data Center Programs. Ms. Tran is expected to serve as the Project Executive and day-to-day lead for TMCG's performance under the EPC Agreement.
Owner's Representative. Kestrel Infrastructure Advisors, LLC ("Kestrel"), led by Diane Prescott, serves as the Owner's Representative for the Project, providing technical review, construction monitoring, and schedule oversight services throughout the design and construction phases.
Scope of This Memorandum. This memorandum addresses six key negotiation areas that remain open or require further analysis and discussion:
1. GMP Structure and Risk Allocation (Section II);
2. Liquidated Damages for Delay (Section III);
3. Change Order Procedures (Section IV);
4. Retainage (Section V);
5. Change of Control Provisions (Section VI);
6. Insurance and Bonding Requirements (Section VII).
In addition, Section VIII addresses several additional negotiation issues on a summary basis, including dispute resolution, indemnification, termination rights, warranty provisions, and governing law. Section IX sets forth our recommendations and proposed next steps for finalizing the EPC Agreement in advance of the October 20, 2025 execution target.
II. GMP Structure and Risk Allocation
A. GMP Amount and Scope
The GMP under negotiation is $412,000,000, which covers the full scope of work as described in Exhibit A to the EPC Agreement (Scope of Work and Technical Specifications). The scope encompasses:
• Four data center buildings (Buildings A, B, C, and D), each approximately 120,000 square feet of shell area and designed to support 24 MW of critical IT load with a 2N diesel generator configuration;
• A central utility plant providing chilled water, heating hot water, and related mechanical infrastructure to serve the campus;
• Site civil work, including grading, stormwater management, utilities, roadways, and landscaping;
• Structured parking; and
• All design, engineering, procurement, and construction services necessary to deliver the foregoing to Substantial Completion.
Per-Building GMP Allocation. For purposes of calculating per-building liquidated damages caps and phased retainage release (discussed in Sections III and V, respectively), the GMP is allocated evenly across the four buildings at $103,000,000 per building ($412,000,000 ÷ 4). This even allocation is an approximation, as the actual cost distribution among buildings may vary depending on sequencing, shared infrastructure costs, and site civil work allocations. We recommend that Exhibit B to the EPC Agreement include a detailed budget breakdown confirming this allocation methodology, and that the parties agree that for purposes of LD calculations and retainage release, the even per-building allocation of $103,000,000 shall control, regardless of actual cost incurrence patterns.
Cost Benchmarks. The GMP translates to the following unit cost benchmarks, which are within the expected range for hyperscale data center construction in the Northern Virginia market:
Exhibit B — GMP Schedule and Budget. Exhibit B to the EPC Agreement will set forth the detailed GMP schedule and budget breakdown, including line-item cost categories for each major trade and building component, TMCG's contractor fee (expressed as a percentage of the cost of work), general conditions, and the contractor contingency. The current draft of Exhibit B is under review by Kestrel and will be updated to reflect the outcomes of the negotiation sessions on the issues discussed in this memorandum.
B. GMP Risk Allocation — Contractor vs. Owner
The GMP structure is the central mechanism for risk allocation in the EPC Agreement. Under a properly structured GMP contract, TMCG bears the risk that the actual cost of performing the work will exceed the GMP, subject to approved change orders that adjust the GMP. If TMCG incurs costs in excess of the GMP without an approved change order, those excess costs are absorbed by TMCG and reduce or eliminate its fee.
Conversely, Owner retains certain categories of risk that, under well-established construction industry practice and Virginia law, are not appropriately transferred to the Contractor. These Owner-retained risks include:
(a) Owner-directed changes to the scope of work, which will result in GMP adjustments through the change order process described in Section IV;
(b) Unforeseen subsurface conditions materially different from those identified in the geotechnical investigation performed by Brannigan Geotechnical Engineering, LLC (project engineer Neil Brannigan, PE), which forms the geotechnical baseline for the Project;
(c) Concealed hazardous materials not identified in the Phase I and Phase II Environmental Site Assessments prepared by Pendleton Environmental Associates, Inc. (lead environmental scientist Dr. Renata Volkov); and
(d) Force majeure events as defined in the EPC Agreement, entitling TMCG to time extensions (but generally not to cost relief, as discussed in Section III.C below).
Negotiation Issue — "Unforeseen Conditions" Definition. TMCG has proposed a broad definition of "unforeseen conditions" in its markup of the draft EPC Agreement that would encompass any subsurface condition, environmental condition, or pre-existing site condition "not reasonably anticipated by Contractor at the time of execution of this Agreement." This formulation is unacceptably vague and could shift substantial risk to Owner for conditions that a competent contractor exercising due diligence should have anticipated. Calderwood & Harkness recommends narrowing the definition to conditions materially different from those identified in the specific geotechnical investigation reports and environmental site assessments delivered to TMCG during the pre-contract due diligence period, and further requiring TMCG to demonstrate that such conditions could not have been reasonably ascertained through a review of those reports and a physical inspection of the site. The definition should reference the specific geotechnical and environmental reports by name, author, and date to create a clear baseline.
GMP Savings Sharing. The EPC Agreement contemplates that if the actual cost of the work is less than the GMP (after accounting for all change orders), the resulting savings will be shared between Owner and TMCG. TMCG has proposed a 50/50 split of savings below the GMP. We recommend negotiating for a 75/25 split (Owner/Contractor), which provides TMCG with a meaningful incentive to control costs and identify value engineering opportunities while preserving the majority of the savings benefit for the Owner. A 75/25 split is consistent with market precedent for large-scale data center GMP contracts in the Mid-Atlantic region and reflects the Owner's position that the Owner has assumed the risk of providing equity and debt financing to support the full GMP amount.
Contractor Contingency. TMCG has included a contractor contingency line item within the GMP budget in Exhibit B. While the inclusion of a contingency is standard practice, we recommend that the EPC Agreement impose the following requirements with respect to the contingency:
(i) Monthly reporting to Kestrel (as Owner's Representative) on all drawdowns against the contingency, including a description of the condition or event giving rise to the draw, the amount drawn, and the remaining contingency balance;
(ii) Contingency draws must be supported by documentation (invoices, subcontractor claims, etc.) demonstrating that the costs are legitimately within the scope of the contingency;
(iii) Any contingency remaining at Substantial Completion shall be subject to the GMP savings sharing mechanism described above; and
(iv) Contingency reporting must be integrated with the monthly draw request reporting required under the Construction Loan Agreement, so that the Construction Lenders have visibility into contingency utilization as part of their construction monitoring function.
C. Scope Exclusions and Interface Issues
Certain items are excluded from the EPC scope and will be performed under separate contracts or by other parties. Most significantly, the utility line extension and substation construction necessary to deliver utility power to the campus are not part of the EPC scope. IHDC has committed to an $18,500,000 line extension contribution to Vantage Power Cooperative under the Line Extension Funding Agreement, and VPC will construct the electrical substation on the Meridian Parcel. The substation will be owned by VPC upon completion of construction, and VPC will deliver power to the campus at the point of interconnection with the Owner's medium-voltage electrical distribution system.
Interface Risk. The interface between the EPC scope and VPC's substation construction presents a significant coordination and sequencing risk. The target date for substation energization is June 1, 2027, which must precede or coincide with the commissioning and testing of the electrical systems in Building A (Substantial Completion target: August 1, 2027). If the substation is not energized on schedule, TMCG may be unable to complete commissioning and testing of the building's critical power and cooling systems, potentially resulting in delay to Substantial Completion even if TMCG's own work is on schedule.
To address this interface risk, we recommend including a detailed Interface Agreement or Interface Protocol as an exhibit to the EPC Agreement. The Interface Protocol should address:
(a) The precise demarcation point between VPC-installed electrical infrastructure and TMCG-installed electrical systems, including switchgear, transformers, and medium-voltage cabling;
(b) A coordinated schedule for substation construction, testing, and energization, with milestone dates that are aligned with the EPC construction schedule in Exhibit C;
(c) Information exchange and coordination meetings between TMCG and VPC (or VPC's substation contractor) at regular intervals during the construction period;
(d) Allocation of responsibility for delays at the interface — if delay is attributable to VPC's failure to complete substation construction on schedule, TMCG should be entitled to a time extension for the affected building(s) and should not be subject to liquidated damages for the resulting delay;
(e) Inspection and acceptance protocols for the interconnection work performed at the demarcation point; and
(f) Respective responsibilities for obtaining any permits or regulatory approvals required for the electrical interconnection.
This Interface Protocol should be reviewed by Kestrel, and we recommend that Diane Prescott coordinate directly with VPC to confirm the substation construction schedule and identify any sequencing risks prior to finalization of the EPC Agreement.
III. Liquidated Damages for Delay
A. Proposed LD Structure
The draft EPC Agreement provides for liquidated damages for delay to Substantial Completion at a rate of $125,000 per calendar day per building. Liquidated damages accrue for each calendar day that Substantial Completion of a building is delayed beyond the applicable milestone date specified in Exhibit C to the EPC Agreement (Construction Schedule and Milestone Dates), subject to adjustments for approved time extensions resulting from Owner-caused delays, force majeure, or change orders with schedule impact.
The applicable Substantial Completion milestone dates are as follows:
These milestone dates and the corresponding LD obligations will be set forth in Exhibit C to the EPC Agreement.
B. LD Cap
The LD cap is calculated on a per-building basis at 10% of the portion of the GMP allocable to that building:
At the proposed daily rate of $125,000 per building, the per-building LD cap of $10,300,000 would be exhausted after approximately 82 calendar days of delay. The aggregate LD cap across all four buildings is $41,200,000, representing 10% of the total GMP of $412,000,000.
C. Negotiation Considerations
TMCG's Counterproposal. In its most recent markup, TMCG proposed reducing the daily LD rate to $75,000 per day per building and lowering the LD cap to 5% of per-building GMP ($5,150,000 per building, or $20,600,000 in the aggregate). Under TMCG's proposal, the cap would be exhausted after approximately 68.7 days of delay per building at the reduced daily rate.
We strongly recommend resisting TMCG's counterproposal and maintaining the LD rate at $125,000 per day per building with a 10% cap. Our reasoning is as follows:
Genuine Pre-Estimate of Damages. Liquidated damages must represent a genuine pre-estimate of the Owner's anticipated damages from delay at the time of contracting, a requirement under Virginia law for enforceability. See Comptroller of Virginia v. King, 217 Va. 751 (1977). The Owner's anticipated damages from a one-day delay per building include, but are not limited to:
(i) Lost rental and colocation revenue. Each building is designed to generate substantial revenue upon lease-up. Based on IHDC's pro forma projections (reviewed by Priya Dasgupta), the expected gross revenue per building at stabilization is approximately $55,000–$60,000 per day, depending on power density and lease structure. The LD rate of $125,000 per day is conservative in light of these projections, particularly given that a delay in Substantial Completion may also result in downstream delays to lease commencement dates and tenant fit-out, potentially extending the revenue impact well beyond the period of construction delay.
(ii) Debt service on the Construction Loan. The $390,000,000 Construction Loan carries interest at SOFR plus 285 basis points. At current SOFR rates, the daily interest carry on the fully drawn loan is approximately $58,000–$65,000 per day, depending on the applicable SOFR rate. Construction delays extend the period during which interest accrues on the loan, increasing the total project cost and reducing Owner's return on invested capital.
(iii) Additional general conditions and owner's soft costs. Extended construction durations result in additional general conditions costs (site management, temporary facilities, insurance, etc.) and increased owner's soft costs, including extended fees for Kestrel (Owner's Representative), additional inspection and testing costs, and extended construction administration by Calderwood & Harkness.
(iv) Reputational harm in the hyperscale leasing market. The Northern Virginia data center market is highly competitive, and delays in delivering new capacity may harm IHDC's reputation with prospective hyperscale tenants and affect the Owner's ability to secure favorable lease terms for Buildings B through D. While reputational harm is inherently difficult to quantify, it is an appropriate consideration in establishing the LD rate as a pre-estimate of overall delay damages.
Taking these factors together, the proposed LD rate of $125,000 per day per building is a reasonable and defensible pre-estimate of the Owner's damages from delay, and the 10% cap provides TMCG with appropriate protection against disproportionate liability.
Exclusive Remedy. The EPC Agreement should clearly state that liquidated damages for delay are Owner's sole and exclusive remedy for delay to Substantial Completion, in lieu of any claim for actual delay damages. This is standard in GMP construction contracts and benefits both parties: it provides the Owner with a certain, predictable remedy and protects the Contractor from exposure to potentially unlimited actual damages claims. The LD provision should include standard recitals that the parties agree the LD rate is reasonable, that actual damages from delay would be difficult to ascertain, and that the LDs are not intended as a penalty.
Excusable Delay and Force Majeure. Under the draft EPC Agreement, TMCG is entitled to extensions of the Substantial Completion milestone dates (and corresponding relief from LD accrual) for excusable delays caused by force majeure events, Owner-caused delays, and delays resulting from approved change orders. The definition of "force majeure" requires careful negotiation. We recommend that the force majeure definition:
(a) Include the customary enumerated events: acts of God, fires, floods, earthquakes, epidemics, pandemics, acts of terrorism, war, civil insurrection, government-imposed shutdowns or work stoppages, and similar events beyond the reasonable control of the affected party;
(b) Exclude labor shortages, increases in the cost of materials, supply chain disruptions that do not rise to the level of a force majeure event (i.e., shortages that could be mitigated through commercially reasonable efforts), and weather conditions within historical norms for Loudoun County, Virginia. Historical weather data for the region should be referenced in the contract or an exhibit to establish the baseline for "normal" weather conditions; and
(c) Require TMCG to provide prompt written notice of any claimed force majeure event (within 72 hours of occurrence), together with a description of the event, its anticipated impact on the construction schedule, and the steps TMCG is taking to mitigate the delay.
Concurrent Delay. We recommend including an express concurrent delay allocation provision in the EPC Agreement. Concurrent delay occurs when delays attributable to both Owner and Contractor overlap in time such that the construction schedule would have been delayed regardless of either party's individual conduct. In such cases, liquidated damages should not accrue during the period of concurrency, as Owner cannot establish that the delay to Substantial Completion was caused solely by TMCG's performance. The concurrent delay provision should require the parties to work together in good faith (with Kestrel's involvement) to identify and allocate periods of concurrent delay, and to adjust the LD calculation accordingly.
D. Lender Requirements
The Construction Loan Agreement with Summit National Bank requires that the EPC Agreement be assigned to the Construction Lenders as collateral under the Assignment of Contracts, Permits, and Approvals. The Construction Lenders will want assurance that the LD provisions in the EPC Agreement are enforceable under Virginia law and adequate to protect the Project from the financial consequences of construction delay.
In particular, the Construction Lenders will likely focus on the following:
(i) That the LD rate and cap are sufficient to cover additional interest carry on the Construction Loan during any delay period, thereby protecting the Lenders' collateral position;
(ii) That the LD provisions are drafted to survive collateral assignment, such that the Construction Lenders (or any successor owner after a lender-directed foreclosure or deed-in-lieu) can enforce the LD provisions against TMCG to the same extent as the original Owner;
(iii) That TMCG has provided its written consent to the collateral assignment of the EPC Agreement, including the LD provisions, to the Construction Lenders; and
(iv) That the force majeure and excusable delay provisions are not so broad as to effectively render the LD protections illusory.
We recommend circulating the final negotiated LD provisions to Victor Redmond at Redmond & Calloway LLP (lender's counsel) and Karen Ellsworth at Summit National Bank for review and confirmation that the provisions satisfy the Construction Lenders' requirements prior to execution of the EPC Agreement.
IV. Change Order Procedures
A. Categories of Change Orders
The EPC Agreement should establish clear procedures for three categories of change orders:
Owner-Directed Changes. These are changes initiated by Owner (acting through Kestrel as Owner's Representative) that modify the scope of work, including additions, deletions, or modifications to the design, specifications, or construction requirements. Owner-directed changes are the most common type of change order and are entirely within the Owner's discretion, subject to the pricing and approval mechanics described in Section IV.B below.
Contractor-Initiated Change Proposals. TMCG may propose changes to the scope of work or construction methods to address unforeseen field conditions, design errors or omissions identified during construction, regulatory or code changes, or value engineering opportunities. Contractor-initiated change proposals require Owner's prior written approval before implementation (except in emergency situations involving an imminent threat to life or property, in which case TMCG may proceed and seek retroactive approval).
Regulatory/Code Change Orders. A distinct subcategory of change orders arises from changes in applicable building codes, zoning conditions, or environmental regulations occurring after the date of the EPC Agreement. These are particularly relevant given the ZMOD approval process for the Project. The Project is subject to a ZMOD application (Docket No. ZMOD-2025-0038) pending before the Loudoun County Board of Supervisors, which may impose conditions of approval that require modifications to the site plan, building design, or construction methodology. Any such conditions imposed after the EPC Agreement date that materially affect the scope of work should be treated as regulatory change orders entitling TMCG to a GMP adjustment (if the condition increases the cost of work) and a schedule extension (if the condition affects the critical path). Owner-directed changes made to accommodate the ZMOD conditions should be processed through the standard owner-directed change order procedure.
B. Pricing and Approval Mechanics
Contractor Markup on Change Order Work. The pricing of change orders is a significant negotiation point. TMCG has proposed the following markup structure:
• Subcontracted work: 15% markup (consisting of 10% overhead and 5% profit) on all change order work performed by subcontractors.
• Self-performed work: 10% markup on change order work self-performed by TMCG.
We recommend negotiating lower markups that are more consistent with market precedent for large-scale data center EPC contracts:
• Subcontracted work: Total markup capped at 10% (inclusive of both overhead and profit).
• Self-performed work: Total markup capped at 8%.
The difference is meaningful: on a project of this magnitude, change orders could easily aggregate to $20–30 million or more over the construction period. A 5-percentage-point reduction in markup on subcontracted change order work (from 15% to 10%) would save Owner $1–1.5 million on $20–30 million of change order work, and this is before considering the compounding effect on GMP adjustments and related carrying costs on the Construction Loan.
Cost Breakdown Requirements. Each change order proposal submitted by TMCG must include a detailed cost breakdown, including:
(a) Itemized labor costs (hours, rates, and classifications for each trade); (b) Material costs (with vendor quotations where applicable); (c) Equipment costs (rental rates, utilization periods); (d) Subcontractor quotations (with at least two competitive bids for subcontracted work exceeding $250,000, where practicable); (e) TMCG's markup, calculated in accordance with the agreed-upon percentages; and (f) A narrative description of the basis for the change order and the work to be performed.
All change order proposals are subject to review and approval by Kestrel (as Owner's Representative), with final approval authority resting with Owner. We recommend establishing a response timeline: Owner (through Kestrel) must respond to a change order proposal within fifteen (15) business days of receipt of a complete submission.
Schedule Impact Analysis. Each change order must include a corresponding schedule impact analysis. If the proposed change order affects activities on the critical path, the schedule impact analysis must identify the specific critical path activities affected, the number of days of delay or acceleration resulting from the change, and any mitigation measures TMCG proposes to minimize the schedule impact. Change orders that do not affect the critical path should not result in extensions to the Substantial Completion milestone dates.
Dispute Resolution for Disputed Change Orders. Disputes over change order pricing, scope, or schedule impact are common on large construction projects and can become a significant source of delay and friction. We recommend establishing a tiered dispute resolution process specifically for change order disputes:
Tier 1 — Project-Level Negotiation. The project-level representatives — Michelle Tran (SVP, Data Center Programs, TMCG) and Diane Prescott (Principal, Kestrel) — shall meet and confer in good faith to attempt to resolve the dispute within ten (10) business days.
Tier 2 — Senior Executive Escalation. If the dispute is not resolved at Tier 1, it shall be escalated to the senior executives — Raymond Okafor (President, TMCG) and Leonard Castellano (EVP, Development, IHDC) — who shall meet and confer in good faith within an additional ten (10) business days.
Tier 3 — Binding Arbitration or Expert Determination. If the dispute remains unresolved after Tier 2, quantum disputes shall be submitted to binding expert determination by an independent construction cost consultant mutually agreed upon by the parties (or, failing agreement, appointed by the American Arbitration Association). Disputes involving scope or entitlement issues (as opposed to purely quantum disputes) shall be submitted to binding arbitration under the applicable arbitration rules, as discussed further in Section VIII.A below.
Critically, while a change order is disputed, TMCG must be required to proceed with the disputed work upon Owner's written direction (a "construction directive" or "interim directed change"), with the final pricing to be determined through the dispute resolution process. This prevents TMCG from using change order disputes as leverage to delay the Project.
C. GMP Adjustment
Change orders that increase the scope of work will result in an upward adjustment to the GMP; deductive change orders (reducing scope) will decrease the GMP. All GMP adjustments must be documented through formal change orders executed by both parties.
Owner Approval Requirements. Any GMP increase requires the prior written approval of Owner. The EPC Agreement should establish a clear approval authority matrix, specifying the dollar thresholds at which different levels of Owner authority are required. For example:
• Change orders up to $250,000 individually (and up to $2,500,000 in the aggregate): approval by Kestrel (as Owner's Representative) with notice to Owner.
• Change orders from $250,001 to $1,000,000: approval by Leonard Castellano (EVP, Development, IHDC).
• Change orders exceeding $1,000,000: approval by the IHDC Board of Managers or its designee.
Lender Reporting and Consent. Under the Construction Loan Agreement, Owner is required to report all approved change orders to the Construction Lenders as a condition to draws that reflect GMP adjustments. We recommend negotiating a threshold in the Loan Documents above which Construction Lender consent is required for GMP increases — specifically, we recommend that aggregate GMP increases exceeding 5% of the original GMP (i.e., $20,600,000) require prior written consent from Summit National Bank as Administrative Agent. GMP increases below this threshold would be reported to the Construction Lenders but would not require affirmative consent, streamlining the construction administration process while preserving the Lenders' right to approve material cost increases.
D. Construction Loan Coordination
The change order process must be tightly integrated with the Construction Loan draw mechanics to ensure that draw requests are consistent with the approved GMP and any approved change orders.
Draw Reconciliation. Each monthly draw request submitted by TMCG to Owner (and subsequently submitted by Owner to the Construction Lenders) must reconcile with the approved GMP (as adjusted by all approved change orders to date), with a detailed breakdown showing the original GMP, the cumulative net change orders, the adjusted GMP, costs incurred to date, retainage held, and the amount of the current draw.
LTC Ratio Covenant. The Construction Loan Agreement contains a loan-to-cost ("LTC") ratio covenant requiring that the aggregate principal amount of the Construction Loan not exceed 65% of total project costs at any time. Any GMP increase resulting from approved change orders will increase total project costs, and the LTC ratio must be maintained after giving effect to the GMP increase. If a GMP increase would cause the LTC ratio to exceed 65%, Owner will be required to make an additional equity contribution to the Project. Such additional equity would likely be funded by Ridgeline Capital Partners Fund IV, LP, which is the principal equity investor in IHDC and the ultimate parent entity of the ownership structure. The potential need for additional equity contributions should be communicated to Ridgeline Capital Management LLC in advance of any significant GMP increases, and the EPC Agreement should require TMCG to provide reasonable advance notice of anticipated change orders that may affect the GMP to allow Owner sufficient time to arrange additional equity if necessary.
V. Retainage
A. Proposed Retainage Structure
The draft EPC Agreement provides for the following retainage structure:
• 0% to 50% completion: Owner retains 10% of each progress payment.
• 50% to Substantial Completion: Owner retains 5% of each progress payment.
• Release: Retainage is held by Owner (or, if required, in an interest-bearing escrow account) and released upon final completion of the Project and satisfaction of all punchlist items.
This tiered retainage structure is common in large commercial construction contracts and serves two important purposes: it provides Owner with financial security to ensure completion of remaining work and correction of deficiencies, and it incentivizes TMCG to achieve final completion promptly after Substantial Completion.
The total retainage at Substantial Completion will vary depending on the timing and distribution of costs, but based on a simplified assumption of even cost distribution, the approximate retainage holdback at Substantial Completion would be in the range of $28–$32 million.
B. Negotiation Issues
Phased Retainage Release — Per-Building Basis. TMCG has requested that retainage be released on a building-by-building basis upon Substantial Completion of each individual building, rather than held until Substantial Completion of all four buildings. Under this proposal, retainage allocable to Building A would be released upon Substantial Completion of Building A on August 1, 2027, without waiting for Substantial Completion of Buildings B through D on November 1, 2027.
We recommend agreeing to TMCG's request for phased retainage release on a per-building basis, subject to the following conditions:
(i) No outstanding defaults. At the time of release, TMCG must not be in default under the EPC Agreement, and no event must have occurred that, with the passage of time or the giving of notice, would constitute a default.
(ii) Punchlist completion. All punchlist items for the relevant building must have been completed and accepted by Owner (through Kestrel) prior to release of retainage for that building. Alternatively, the parties may agree to release retainage upon Substantial Completion with a retention of a specified amount (e.g., 150% of the estimated cost to complete punchlist items) pending final punchlist completion.
(iii) Final lien waivers. TMCG must deliver final, unconditional lien waivers from all subcontractors, sub-subcontractors, and material suppliers whose work or materials are included in the scope of the relevant building.
(iv) Lender consent. Release of retainage is subject to the prior written consent of Summit National Bank, N.A. as Administrative Agent under the Construction Loan, in its capacity as collateral assignee of the EPC Agreement. The Loan Documents may contain specific provisions governing the release of retainage, and any retainage release under the EPC Agreement must comply with those provisions.
Agreeing to phased release is a reasonable accommodation that improves TMCG's cash flow during the construction period (particularly given the three-month gap between Building A Substantial Completion and Buildings B–D Substantial Completion) and is unlikely to materially increase Owner's risk, provided the conditions listed above are satisfied.
Subcontractor Retainage. We recommend confirming that TMCG's subcontracts with its trade subcontractors mirror the retainage structure of the prime EPC Agreement. TMCG should not retain more from its subcontractors than Owner retains from TMCG, and TMCG should be required to release subcontractor retainage promptly upon release of the corresponding retainage from Owner. This protects against situations where TMCG uses subcontractor retainage as a cash management tool at the expense of subcontractor goodwill and performance.
Virginia Prompt Payment Requirements. The retainage provisions must comply with Virginia's prompt payment statutes applicable to private construction contracts. Virginia Code § 2.2-4354 (which applies to public contracts) is not directly applicable, but the principles of prompt payment under Virginia common law and the Virginia Construction Code should be considered. In particular, retainage release should occur within a commercially reasonable period (recommend 30 days) after satisfaction of the applicable release conditions to avoid any argument that Owner is improperly withholding retainage.
VI. Change of Control Provisions
A. Change of Control of Owner
The draft EPC Agreement grants TMCG a consent right with respect to any change of control of the project Owner entity (Stonebridge Campus Holdings LLC). This consent right is qualified by a "not to be unreasonably withheld, conditioned, or delayed" standard, which is appropriate and should be retained.
Definition of "Change of Control." The EPC Agreement currently defines "change of control" as any transfer, directly or indirectly, of a "controlling interest" in Stonebridge Campus Holdings LLC or Ironhaven Data Centers LLC. This definition requires careful refinement to ensure alignment with the parallel change of control provisions in the Construction Loan Agreement.
Under the Construction Loan Agreement, a "Change of Control" is defined as any transfer resulting in Ridgeline Capital Partners Fund IV, LP ("RCP Fund IV"), directly or indirectly, ceasing to hold at least 51% of the equity interests in the Borrower (Stonebridge Campus Holdings LLC) or the Guarantor (IHDC). The Construction Loan Agreement treats a Change of Control as a mandatory prepayment event, entitling the Construction Lenders to accelerate the loan.
Cross-Document Coordination. It is critical that the EPC Agreement's change of control definition be drafted consistently with the Construction Loan Agreement definition. A misalignment between the two definitions could produce undesirable outcomes:
• If the EPC Agreement definition is broader than the Loan Agreement definition, a transfer that is permitted under the Loan Agreement could nonetheless trigger TMCG's consent right under the EPC Agreement, creating an unnecessary impediment to a transaction that the Construction Lenders have already approved.
• Conversely, if the EPC Agreement definition is narrower, a change of control that triggers a mandatory prepayment event under the Loan Agreement might not trigger the EPC Agreement consent right, resulting in a situation where the project's debt is accelerated while the EPC Agreement remains in full force with a new owner that TMCG has not consented to.
We recommend adopting the same 51% / RCP Fund IV threshold in the EPC Agreement as is used in the Construction Loan Agreement, and cross-referencing the Loan Agreement definition where appropriate.
Customary Carve-Outs. The EPC Agreement's change of control consent right should include carve-outs for the following types of transfers, which should not require TMCG's consent:
(i) Transfers among affiliates. Transfers of direct or indirect ownership interests in SCH or IHDC among affiliates of RCP Fund IV (including Ridgeline Capital Management LLC, the fund's general partner, and any successor fund vehicles managed by Ridgeline Capital Management LLC).
(ii) Co-investor and parallel fund transfers. Transfers to co-investors or parallel fund vehicles managed by Ridgeline Capital Management LLC, including but not limited to any separate account vehicles or co-investment vehicles established by Ridgeline for institutional limited partners participating in the Project.
(iii) Pledges to lenders. Pledges of membership interests in SCH or IHDC to the Construction Lenders (or any refinancing lenders) as collateral, as required under the Pledge Agreement executed in connection with the Construction Loan. This carve-out is essential, as the Pledge Agreement is a condition to closing of the Construction Loan.
(iv) Management incentive pool transfers. Transfers of the management incentive pool interests held by Ironhaven Management Incentive Pool LLC (which holds approximately 8% of the equity interests in IHDC through RCP Digital Holdings LLC). Transfers within the management incentive pool — including grants to, and forfeitures by, individual IHDC employees and executives — should be excluded from the change of control definition.
B. Change of Control of Contractor (TMCG)
Equally important is the Owner's right to address a change of control of TMCG. The relationship between Owner and TMCG is built on TMCG's specific expertise in data center construction, its institutional knowledge of the Project, and the continuity of the project team — particularly the team led by Michelle Tran (SVP, Data Center Programs), who has been involved in the Project since the initial scoping phase. A change of control of TMCG — whether through a sale, merger, or management change — could fundamentally alter the character of the Contractor and undermine the basis on which Owner selected TMCG for the Project.
Definition. We recommend defining a change of control of TMCG to include any of the following events:
(i) The sale, transfer, or disposition of all or substantially all of TMCG's assets;
(ii) Any merger, consolidation, or similar business combination involving TMCG in which TMCG is not the surviving entity (or in which the equity holders of TMCG immediately prior to the transaction do not hold a majority of the voting interests in the surviving entity);
(iii) Any change in the majority ownership or voting control of TMCG; or
(iv) The removal or replacement of Raymond Okafor as President of TMCG without Owner's prior written consent.
The inclusion of clause (iv) is unusual but warranted in this context. Mr. Okafor is the principal of TMCG and has personal involvement in the Project. His departure or removal could signal a broader organizational change at TMCG that would affect the Contractor's ability to perform.
Owner's Termination Right. Upon a change of control of TMCG, Owner should have the right, but not the obligation, to terminate the EPC Agreement. We recommend that this termination right be structured as a termination for convenience rather than a termination for cause, with the following payment terms:
(a) Payment for all work properly performed and accepted to the date of termination; (b) Payment of reasonable demobilization costs; and (c) A reduced termination fee (i.e., less than the full termination fee payable upon an Owner termination for convenience under ordinary circumstances), reflecting the fact that the change of control was triggered by TMCG's own corporate event, not by any act of Owner. We recommend negotiating a termination fee in this scenario of no more than 2% of the unperformed portion of the GMP, as compared to the standard convenience termination fee (discussed in Section VIII.C below).
Key Person Provisions. In addition to the change of control termination right, we recommend including a "key person" clause in the EPC Agreement that specifically requires Michelle Tran to remain as the Project Executive and TMCG's primary point of contact for the duration of construction. The key person clause should provide that:
(a) TMCG shall not reassign, remove, or replace Michelle Tran as Project Executive without Owner's prior written consent;
(b) If Ms. Tran voluntarily departs TMCG or is reassigned to another project, TMCG must promptly notify Owner, and Owner shall have a reasonable period (e.g., 30 days) to evaluate the proposed replacement and approve or reject the replacement in its reasonable discretion;
(c) If TMCG is unable to provide a replacement Project Executive acceptable to Owner within the cure period, Owner may exercise the change of control termination right described above; and
(d) The departure of Ms. Tran does not independently constitute a default under the EPC Agreement, but failure to comply with the notice and replacement procedures constitutes a default.
C. Cross-Document Coordination
The change of control provisions in the EPC Agreement must be coordinated with corresponding provisions in the Construction Loan Agreement and the LLSA with Vantage Power Cooperative. A separate internal memorandum analyzing the change of control provisions across all three agreements has been prepared and will be circulated under separate cover. That memorandum recommends harmonization of definitions, trigger thresholds, and notice/consent procedures across all three agreements to minimize the risk of inadvertent triggering of change of control provisions and to ensure that the Owner has a clear, coordinated framework for addressing ownership changes.
As a threshold matter, we note that the collateral assignment of the EPC Agreement to the Construction Lenders means that the Construction Lenders' consent will likely be required before Owner exercises any termination right under the change of control provisions. The collateral assignment creates a direct interest of the Construction Lenders in the continuity of the EPC Agreement, and termination of the EPC Agreement — even in response to a TMCG change of control — could impair the Construction Lenders' security interest. We recommend confirming the consent requirement with Victor Redmond at Redmond & Calloway LLP and incorporating a provision in the EPC Agreement requiring Owner to provide the Construction Lenders with advance notice and an opportunity to cure before exercising any termination right.
VII. Insurance and Bonding Requirements
A. TMCG Insurance Requirements
Exhibit D to the EPC Agreement will set forth the detailed insurance requirements applicable to TMCG. The following minimum insurance coverages are required:
Commercial General Liability ("CGL"). TMCG shall maintain commercial general liability insurance with a per-occurrence limit of not less than $150,000,000. TMCG has indicated that its CGL coverage is carried through Pinnacle Indemnity Insurance Co. We recommend requiring TMCG to provide certificates of insurance and policy endorsements (including additional insured endorsements naming Owner, IHDC, Kestrel, and the Construction Lenders as additional insureds) prior to commencement of work.
Builder's Risk. Builder's risk insurance in an amount not less than $412,000,000 (equal to the full GMP value) shall be maintained throughout the construction period. TMCG has identified Great Basin Surety & Insurance Corp. as the proposed carrier, with a deductible of $250,000 per occurrence. The builder's risk policy should cover all risks of physical loss or damage to the work in progress, including damage from fire, wind, flood (to the extent the Project is located in a flood zone or is otherwise at risk), theft, vandalism, collapse, and other insured perils.
We note that the Owner is currently evaluating the implementation of an Owner-Controlled Insurance Program ("OCIP") for the Project. If an OCIP is implemented, the builder's risk placement may shift from the TMCG-procured program to the OCIP. Northgate Insurance Brokerage, LLC (account executive William Keane) is conducting the feasibility analysis and has estimated potential premium savings of 12–15% compared to the traditional (contractor-procured) insurance program. The decision regarding the OCIP should be made prior to execution of the EPC Agreement, as the insurance provisions in the contract (and particularly Exhibit D) will need to be tailored to reflect whether the OCIP or traditional program is utilized. If an OCIP is implemented, the EPC Agreement will need to include an OCIP enrollment addendum requiring TMCG and all subcontractors to enroll in the OCIP.
Workers' Compensation. TMCG shall maintain workers' compensation insurance at statutory limits as required by Virginia law, and employer's liability insurance with limits of not less than $1,000,000 per occurrence.
Additional Required Coverages. Exhibit D should also specify minimum requirements for the following coverages:
• Automobile liability insurance: $5,000,000 combined single limit.
• Umbrella/excess liability insurance: $50,000,000 per occurrence, excess of CGL, automobile liability, and employer's liability.
• Professional liability (errors and omissions) insurance: $10,000,000 per claim, applicable to the design services performed by TMCG or its design subconsultants within the EPC scope. This coverage is essential because the EPC Agreement encompasses design-build responsibility, and TMCG bears liability for design errors and omissions in addition to construction defects.
B. Performance and Payment Bonds
Performance Bond. TMCG shall provide a performance bond in an amount equal to 100% of the GMP ($412,000,000), issued by Great Basin Surety & Insurance Corp. The performance bond guarantees TMCG's faithful performance of all obligations under the EPC Agreement and provides Owner (and, by extension, the Construction Lenders as collateral assignees) with recourse to the surety in the event of TMCG's default.
Payment Bond. TMCG shall provide a payment bond in an amount equal to 100% of the GMP ($412,000,000), also issued by Great Basin Surety & Insurance Corp. The payment bond guarantees payment to subcontractors, material suppliers, and laborers for work performed under the EPC Agreement, thereby protecting Owner against mechanics' lien claims.
Form and Lender Approval. Both bonds must be in a form satisfactory to Owner and the Construction Lenders (Summit National Bank, N.A.). Standard AIA forms (A312-2010 Performance Bond and Payment Bond) are commonly used, but the Construction Lenders may require modifications or supplementary terms. Grace Nakamura at Calderwood & Harkness is conducting a separate review of the bond forms and will circulate a memorandum addressing any issues with the proposed forms. We defer to Grace's analysis on the specific terms of the bonds.
Surety Financial Strength. We recommend confirming that Great Basin Surety & Insurance Corp. maintains a financial strength rating acceptable to the Construction Lenders. The Loan Agreement typically requires the surety to carry an A.M. Best rating of A- (Excellent) or better, with a financial size category sufficient to support a $412,000,000 bond. If Great Basin does not currently meet this threshold, TMCG will need to identify an alternative surety, which could delay execution of the EPC Agreement and should be addressed promptly.
C. Coordination with Loan Document Insurance Requirements
The Construction Loan Agreement contains its own minimum insurance requirements for the Project, which are set forth in a schedule to the Loan Agreement. These requirements may differ in certain respects from the requirements in Exhibit D to the EPC Agreement — for example, the Loan Agreement may impose higher limits for certain coverages, require specific endorsements (such as lender's loss payable endorsements for the builder's risk policy), or mandate additional insured status for the Construction Lenders on all liability policies.
To ensure that there are no gaps between the EPC Agreement insurance requirements and the Loan Agreement insurance requirements, we are preparing a separate Insurance Requirements Compliance Matrix that provides a line-by-line comparison of the two sets of requirements and identifies any areas where the EPC requirements must be enhanced to satisfy the Loan Agreement. The Compliance Matrix will be circulated for review by Douglas Fairchild, Angela Fontaine, and William Keane (Northgate Insurance Brokerage) prior to finalization of Exhibit D.
VIII. Additional Negotiation Issues — Summary
In addition to the six principal negotiation areas discussed in Sections II through VII, the following issues require resolution prior to execution of the EPC Agreement. These issues are addressed on a summary basis; if the deal team requires a more detailed analysis of any of these topics, we can prepare a supplemental memorandum.
A. Dispute Resolution
TMCG has proposed that all disputes under the EPC Agreement be resolved through binding arbitration under the American Arbitration Association ("AAA") Construction Industry Arbitration Rules. While arbitration offers certain advantages (including confidentiality, speed, and the use of industry-expert arbitrators), Owner may prefer to submit disputes to the Loudoun County Circuit Court for the following reasons:
(i) The Project is located in Loudoun County, and the real property improvements that are the subject of the EPC Agreement are situated there;
(ii) The Construction Loan Agreement contains a forum selection clause designating Loudoun County, Virginia as the exclusive forum for disputes, and using the same forum for EPC disputes avoids the risk of parallel proceedings in different forums;