Data centre construction disputes: keeping projects moving

Plan ahead for disputes

Disputes are, to some extent, inevitable in data centre projects.

During construction, many dispute themes are familiar – claims relating to delay, cost and defects.

But there are features of data centre projects that make these disputes more complex to manage and resolve.

It makes sense to plan ahead with a dispute resolution strategy tailored to these projects – the issues likely to arise and the timescales for resolving them.

There is no one-size-fits-all solution but building flexibility into the choice of dispute resolution tools will help parties find the right approach.

Why dispute planning matters now

According to PwC’s Global Data Centre Outlook, data centre capital expenditure is forecast to rise from roughly US$800 billion per year in 2026 to $1.8 trillion per year in 2050.

At this scale, it is inevitable that disputes will arise.

Disputes are already reaching the courts, involving allegations of design defects, construction delays and defective and non-compliant works.

However, court claims may be the tip of the iceberg, as many other disputes will be dealt with privately.

This is borne out by the recent CMS report “Risks in data centre construction”, based on a survey of 123 professionals involved in data centres worldwide, in which 60% of respondents said they had referred a dispute to a formal dispute resolution process.

Construction pressures that drive disputes

Several features of data centre projects help explain their susceptibility to disputes:

• Significant capital investment.
• Multi-party involvement – consultants, contractors, specialist subcontractors and equipment suppliers.
• Cross-border aspects – clients and supply chains.
• Global demand causing supply chain bottlenecks for skilled personnel and specialist components.
• Compressed programme and pressure to meet operational dates.
• Complex programming interfaces between elements of the works and commissioning.
• Integration and compatibility management for civils, building and complex mechanical, electrical and power systems.
• Fast-moving technological developments, first-of-a-kind technologies being trialled but onerous operational standards.
• No market-standard form of contract so no common approach to risk allocation.

Why traditional contract remedies may fall short

Many standard form construction contracts include early warning mechanisms requiring contractors to flag issues they anticipate may cause delay or extra cost so these can be addressed before they damage the project.

These can work well when operated effectively and where parties work together to mitigate issues and find solutions.

Where multiple parties are involved and not all have contractual relationships with each other, that can be difficult to achieve, particularly without a contractual framework for finding multi-party solutions.

If early warnings do not prevent an issue, contractors may turn to typical contractual mechanisms, including claims for additional payment and extension of time.

These can become contentious – an unhelpful distraction when trying to deliver at pace.

Typical employer remedies such as applying liquidated damages for delay and, in extreme cases, termination rights, have their own limitations.  These are not designed to keep the project moving and, particularly with termination, will do the opposite.

Operationally and commercially that is not a viable option.

Parties then need to turn to other remedies: using escalation processes designed to identify, manage and resolve disputes at an early stage can help parties agree an interim solution to keep the project moving, even if the main issues are parked until later.

Those could include escalation to senior management, mediation or interim forms of dispute resolution such as adjudication which produces a relatively fast decision.

Another option is expert determination on a key technical point, although that is not a feature in all standard form contracts so would need to be added or agreed once an issue has arisen.

These may still not be fast enough if an issue is holding up progress so appointing a dispute board at the outset, available to consider and decide issues at speed, may help.

In reality, much will turn on the relationships between the parties and whether, alongside significant delivery pressures, these support finding solutions and resolving disputes.

Practical steps to keep projects moving

• Given the many pressure points that could trigger disputes, plan up front how to identify, manage and resolve them, and reflect this in behavioural expectations and contractual arrangements.
• Consider how to build and maintain relationships across contracting parties through opportunities for multi-party discussions or contractual incentives for collaboration.
• Encourage effective use of early warning systems and the opportunities they offer to identify and manage issues early.
• Design dispute resolution mechanisms that offer flexibility to manage and resolve issues effectively as they arise, keeping the project moving.
• Where disputes do arise, consider the broad commercial picture and the available dispute resolution options to choose the most effective tool for the circumstances.