Data centres: Legal challenges and trends in 2026

As we predicted in our horizon scanning for 2025, demand for data centres continues to rise rapidly and the UK government’s National Data Strategy predicts data usage will double by 2026.

Growth is driven in large part by the rise in artificial intelligence (something all industries, including the legal sector, are having to adapt to and embrace) and cloud based computing. Planning applications for data centres in the UK continue to increase, and the UK remains one of the top data centre markets in the world  (surpassed in number by only the USA and, by a handful of datacentres only, Germany). 

Whilst favourable changes to the National Planning Policy Framework and the designation of data centres as nationally significant infrastructure should help ease the planning process, the data centre development boom is not without its legal challenges.

Disputes and technological resilience

Data centres are complex construction projects, and huge sums of money are at stake not just in the construction of them but also throughout their operation. Even minor delays or periods of downtime can result in cost overruns into the millions.

There are typically multiple parties and stakeholders involved in the construction of data centres and the related supply chains, and the greater the complexity and the more parties involved the higher the risk of disputes arising. Further, rapid changes in the technology used in data centres means obsolescence is a real issue facing the industry where older facilities become old and outdated before their time, and sometimes during the period of the construction work itself.

This can lead to employers instructing scope changes during the course of a project, or seeking to omit works, suspend them or even terminate the engagement of contractors where project demands and requirements have shifted during the construction phase. With changes in scope and poor contract administration being some of the leading causes of construction disputes, parties should ensure their contracts are clear on the consequences of scope changes (in particular omissions) as well as the grounds for termination and suspension.

Going forward, it may be more common for employers to structure the construction of data centres across multiple contracts to divide up and separately procure the construction of the shell and fitting out in phases.

Supply chain availability

The components, plant and equipment required for the construction of data centres is highly specialised, limiting the choice of suppliers and leading to supply chain bottlenecks where demand far outstrips supply.  As well as causing delays, this also creates imbalances in the negotiating positions for contractors and clients: suppliers know there are limited alternatives for their clients and can leverage this for untypically favourable positions on risk allocation.

Due to the limited supply options, contractors are more exposed to the risk of supply chain insolvency, particularly where employers are removing any choice in the supply chain selection by procuring equipment early and requiring contractors to assume responsibility for long lead equipment. Contractors and employers must carefully negotiate who will bear the risk of a supplier insolvency as the more accepted position of sub-contractor insolvency being a contractor risk becomes a ‘harder sell’. 

Competence and experience

New emerging technologies pose challenges for contractors in trying to ensure they stay within the scope of their professional indemnity cover, and clients may need to share in more of the risk where the potential losses outstrip the available insurance cover. A typical contractor’s bottom line simply cannot take the assumption of such large-scale risks on multiple projects without limitations on liability which are more reflective of standard commercial developments, leading to the reviewing of procurement models and a departure from the typical ‘single point responsibility’ approach to commercial developments.

Contractors need to carefully consider the standards of care they are agreeing to sign up to and the experience and competence they are warranting when undertaking projects which involve the development and use of emerging technology to come up with unique design solutions.

Whilst it seems unlikely that the data centre development boom will end with a total bust, alternative phased procurement structures are likely to emerge along with a recalibration of the risk allocation between contractors and clients, where the more traditional market positions which are adopted on typical commercial developments are not manageable by contractors on such a scale.