Data Centres: Opportunities and conflicts in a rapidly expanding market

Data centres are now the backbone of the digital economy, supporting everything from cutting-edge AI innovations to routine online transactions. Recognised as critical national infrastructure in many jurisdictions, these secure hubs are driving an unprecedented wave of growth. Global investment is projected to require almost USD7 trillion globally by 2030 to keep pace with demand¹, and construction activity is booming.

This transformation creates significant opportunities but it also brings risks. While public attention has often been focused on issues like sustainability, energy supply, and land constraints, construction-related data centre disputes are on the rise and only likely to increase. This article examines the underlying causes of these disputes. As investment in data centre infrastructure accelerates, understanding where conflicts arise during the build phase and how they can be managed is ever more important.

 

Overview of global construction activity

Globally data centre construction activity is accelerating across all major regions. In North America, inventory expanded by 24.4% year-over-year in Q1 2024, driven by surging demand from public cloud providers and AI companies, particularly in hubs like Northern Virginia². Europe also saw robust expansion, with nearly 20% growth in Q1 2024 and standout performance in Paris, which exceeded 40% year-over-year growth. Latin America’s inventory increased by 15%, led by São Paulo, while Asia-Pacific recorded a 22% rise, with major cities such as Tokyo, Sydney, Hong Kong, and Singapore each supporting substantial power capacity despite tighter planning constraints.

Despite rising global demand and growing interest in emerging markets, most development activity remains concentrated in mature regions. In fact, roughly 80% of the 12.5GW currently under construction, and a similar share of the 66.2GW planned pipeline is located in established data centre markets.

 

Key drivers of construction disputes

The scale and complexity of modern data centre projects make them particularly vulnerable to conflict. Rapid delivery schedules, specialist technology requirements, multiple suppliers, the pressure of unprecedented investment and strict compliance requirements create fertile ground for disagreements over timing, quality and cost. Below are some of the factors that we are seeing driving disputes:

Aggressive timelines

The surge in demand for data centres is being driven by AI adoption, cloud expansion and hyperscale requirements. Operators and investors are under intense pressure to bring capacity online quickly to secure market share and meet contractual commitments with major technology clients. This urgency often results in:

• Insufficient time for design and coordination: Construction often moves ahead before designs are fully developed, increasing the likelihood of scope changes and coordination issues.
• Reduced time for risk assessment: Shorter planning windows mean less opportunity to identify and mitigate potential issues upfront, leaving parties exposed when problems arise.

Supply chain constraints

Data centre projects rely on highly specialised equipment. Lead times for key data centre components have diverged sharply from those for general electronics. Memory is a critical pressure point. For standard builds, lead times for DRAM (a type of memory) typically range between 8 and 16 weeks. In contrast, lead times for data centre grade DRAM can reach up to 35 weeks. Certain energy storage electrical components (such as high-capacitance MLCCs and polymer tantalum capacitors) are also experiencing significant delays, with some lead times stretching to nearly a year. Overall, data centre projects are now seeing two to three times longer waits for critical parts compared to other sectors, intensifying supply chain challenges and project risks. This can create severe supply chain bottlenecks³. These delays often clash with fast-track schedules, sparking disputes over missed deadlines, cost overruns and liability. The bespoke nature of this equipment makes substitutions difficult, which can compound matters when a project starts to slide into delay.

Labour skills shortages

Delivering data centres requires highly specialised contractors and subcontractors including electrical engineers, cooling system experts and security specialists, yet the global talent pool is stretched. In North America alone, it is estimated that half a million additional workers are needed to meet the pending construction demand, and similar shortages exist across Europe^4. In Asia the problem is particularly acute. This scarcity can lead to inflated costs, scheduling conflicts and quality issues. When specialist labour is unavailable, parties may resort to less experienced providers, heightening the risk of defects and rework.

Design issues

Design challenges remain one of the leading causes of conflict in data centre construction. This includes:

• MEP design
  Mechanical, electrical and plumbing (MEP) systems are fundamental to data centre performance, yet MEP consultants are rarely appointed as lead designers. This often results in fragmented responsibilities and weak coordination between disciplines.
• Incomplete or evolving design
  Fast-track programmes frequently push construction to start before designs are fully developed. While this accelerates delivery, it leaves little room for coordination and increases the likelihood of errors and omissions. Late design changes, often driven by evolving technology or client demands, are among the most common triggers that we are seeing.
• Impact of market shift to hyperscale campuses
  The industry’s evolution from individual operators to hyperscale campuses and global specialist developers has magnified design risk. Larger projects involve more stakeholders, stricter design standards and multi-tiered contracting structures. This scale increases coordination complexity and makes late changes more disruptive.
• System integration risks
  Modern data centres depend on tightly connected systems (such as cooling, plumbing and power) to operate reliably and efficiently. If these systems aren’t properly coordinated during design, for example, if the cooling layout conflicts with plumbing, it can lead to performance problems and even failures. Often integration issues might take a while to become apparent, for example they might only be discovered at commissioning.

 

Consequences of failure

With average construction costs now ranging from USD500 million to USD2 billion⁵, and construction costs per square foot having climbed 47% year-over-year to USD977⁶, the financial impact of delays or quality issues can be huge.

These facilities often serve tenants with strict service-level agreements and delivery commitments, meaning any failure to meet deadlines or performance standards can trigger significant liabilities. These provisions are typically strict because their operations depend on guaranteed capacity and uptime.

Investigating defects and carrying out remedial works can be fraught with difficulty. Tenants often control access to critical areas and may not grant access easily, given their understandable desire to protect both confidential information and proprietary technology.

Shutting down systems, even briefly, can cause severe business interruption and financial loss. It’s often preferable to carry out remedial works in a live-data centre environment, but this itself can be challenging. The specialist equipment can be highly sensitive to contamination and even minor dust can damage components, necessitating costly protective measures.

In some cases, failure to meet contractual obligations may also give tenants’ termination rights. Beyond these direct liabilities, delays often lead to increased financing costs, inflationary cost increases and significant reputational risk.

 

The dispute landscape

When issues arise during data centre projects, given the significant potential costs and liabilities, disagreements can escalate into formal disputes. In this sector there is often a heightened preference for discretion, due to the sensitive nature of the technology and the need to protect confidential information. This makes arbitration an attractive alternative to litigation. However, both arbitration and litigation can be protracted and costly, which is often at odds with the fast-paced demands of data centre delivery. As a result, it is increasingly common for contracts to include tiered dispute resolution clauses, such as adjudication or expert determination, to enable faster decisions that keep projects on track.

A further complexity arises from the number of contractors and subcontractors typically involved on a data centre project. This often gives rise to multi-party disputes. In such cases, parties are understandably reluctant to initiate several parallel arbitrations or litigations, given the time and expense involved. Mechanisms that allow for consolidated resolution of multi-party disputes are therefore essential to avoid fragmentation and inefficiency.

Finding the right expertise to support formal proceedings can be challenging. Data centre disputes often involve highly specialised technical issues, and the pool of experts with deep data centre specific experience is relatively small.

 

Building resilience into projects

Delivering data centre projects is demanding, but the risks can be managed with the right approach. Based on what we see in practice, here are some steps that can make a real difference:

• Coordinate design with experienced teams: A well-prepared design helps reduce later adjustments, but changes are often unavoidable as technology and client needs evolve. Having people who understand data centre projects and can manage integration across disciplines makes it easier to adapt without disrupting progress. Skilled coordination brings flexibility and clarity, which supports delivery even when requirements shift.
• Engage tenants and end users early: Early involvement helps align technical specifications and operational needs before construction begins and reduces the risk of late design changes.
• Source the right expertise: Data centres involve systems and integration challenges that go beyond standard MEP knowledge. Having specialists with deep data centre experience is critical for both delivery and resolving issues if they arise.
• Secure the supply chain: Long lead times for specialist equipment such as generators, switchgear and cooling systems are common. Early procurement and supplier diversification can help to keep the programme on track.
• Clear contract drafting: Define responsibilities for each party with precision. Ensure technical specifications are intelligible, and consistent with the terms in the main agreement. Where possible, ensure consistency across the contractual chain to avoid liability gaps and to achieve interfaces that work.

 

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¹The cost of compute power: A USD7 trillion race | McKinsey
²Global Data Centre Trends 2024 | CBRE
³Lead time Report | Sourceability
⁴Construction sector challenged by uptick in data centres for AI - WTW
⁵Data centres construction risk trends | Allianz Commercial
⁶October Data Centre Report: Spending Reaches USD13 billion as Costs Rise