Data center construction is surging around the world as companies race to build the critical infrastructure needed to power advancements in artificial intelligence. We consider below how this boom in data center construction could lead to a new wave of international arbitration.
Booming Investment and Energy Incentives May Lead to Investor-State Disputes
Whilst data centers have long supported cloud storage, streaming services, and the rest of our digital economy, AI is fueling unprecedented demand for new and more powerful data centers.1
The United States currently has the most hyperscale data centers or "hyperscalers" that major tech companies like Microsoft, Google, Meta and Apple use for large-scale computing and storage—and demand for data centers in the US is expected to more than triple from 2024-2030 at an estimated investment cost of more than US$500 billion.2 But whilst the US is leading the way, most new deal activity for data centers is happening outside the United States as companies search for affordable real estate and access to low-cost electricity sources.3 Global hotspots for new data center construction include Asia-Pacific countries like India, Malaysia, Thailand and Vietnam, as well as emerging markets in the Middle East, Africa and Latin America.4 In Africa, for example, the Bharti group is constructing its first hyperscale data center on the continent in Nigeria, and Huawei is developing a new cloud region in Cairo.5
Data centers require a tremendous amount of energy to operate. In the US, data centers now consume over 4% of national electricity and that could rise to as much as 12% by 2028.6 Big tech firms thus are searching for ways to maintain their sustainability commitments with these new more powerful data centers. As recent examples, companies like Meta and Amazon have entered into long-term agreements to acquire nuclear power to fuel their US data centers, whilst Constellation announced it will open a new clean energy center and restart operations at Three Mile Island under a long-term agreement to sell carbon-free nuclear energy to Microsoft to help match the power that its data centers in the region use.7 Oklo and TerraPower, backed by OpenAI and Bill Gates, also are raising hundreds of millions to build small modular reactors targeted at powering AI data centers.8
Some States are taking steps to incentivize investment in renewable energy to power the new data centers, including in Africa and in Latin American States like Chile and Brazil.9
These massive investments in largescale data centers and in renewable energy projects could lead to disputes between the foreign investors and the host States. Investors are at constant risk of political and regulatory changes. States such as Spain and Italy, for instance, impacted numerous investors by cutting subsidies and other incentives offered to entice investment in solar, wind and other renewable energy. Investors should ensure they are protected against the risk of similar rollbacks in incentives relied upon to make investments and against other official acts or omissions that impermissibly devalue or encroach on their investments.
One crucial safeguard for foreign investors is the ability to present claims against the host State to a neutral tribunal through international arbitration rather than to the State's own domestic courts. This type of arbitration is often the best and only meaningful way for investors to obtain compensation in politically charged disputes with the State. These disputes can arise where the State directly takes an investment from a foreign investor by decree or armed action or where it causes losses through arbitrary or discriminatory changes in law, policy, regulation, administrative licensing or permitting procedures, or through failures of due process.
Whilst some investors may be able to negotiate agreements with the host State that offer recourse to international arbitration, many foreign investors will not have a contractual right to arbitrate claims against the State and will need to assess whether the State has consented to arbitration under its own national laws or in an applicable treaty on investment protection. There presently are thousands of treaties in force globally that contain mutual undertakings between two or more contracting States to protect and promote investments. These treaties protect qualifying investors of one contracting State that have made qualifying investments in the territory of another contracting State against official acts or omissions that are arbitrary, discriminatory, or constitute a taking of their investment—and give those investors standing to bring direct claims against the State for alleged breaches of the treaty's substantive protections.
Most of these investment treaties define "investments" broadly to include shares of a local company even if held indirectly through one or more subsidiaries based in third-State jurisdictions. Given the number of investment protection treaties and the broad definition of protected investments, investors generally can structure their holdings to benefit from investment treaty protection in almost any jurisdiction. This type of structuring requires careful advance planning, including consideration of the tax effects of establishing a holding company in a jurisdiction to benefit from an investment protection treaty, and the holding structure must be completed before problems with the host State begin to occur or the tribunal may dismiss the claims based on a lack of temporal jurisdiction.10
Construction Disputes Also May Arise Between Project Owners and Contractors
In addition to the possibility of investment disputes with the State, large-scale infrastructure projects like data centers also may end in complex disputes between the project owners and contractors arising from cost overruns or delays. Data center owners can and should implement processes and procedures during project development to identify and resolve issues before they ripen into formal claims. For example, firm but fair contract administration, strong project governance and record keeping so that there are contemporaneous records to support claims, and the use of executive steering groups to monitor and manage emerging issues as they arise, are all useful strategies to avoid issues escalating into dispute.
If claims nonetheless arise and cannot be resolved by the parties themselves, owners and contractors may consider (either at the contracting stage, which is preferable, or possibly after a dispute arises) agreeing to mediation, conciliation, or some other amicable dispute resolution facilitated by a neutral who can help resolve the dispute reasonably promptly without the need for either party to commence an arbitration or litigation and without disruption to the long-term business relationship, which may be essential where contractors and data center owners are looking to deliver a pipeline of projects over longer time horizons.
Where disputes cannot be managed or resolved amicably, a contractually agreed dispute resolution procedure that includes arbitration generally is preferred, especially though not exclusively where the parties have different nationalities. The International Federation of Consulting Engineers (Fédération Internationale Des Ingénieurs-Conseils or "FIDIC") publishes the most widely used model contracts for international construction projects. FIDIC's model contracts differ by project type and include a Red Book for Building and Engineering Works Designed by the Employer, a Gold Book for Design, Build and Operate Projects and a Silver Book for EPC/Turnkey Projects.
The dispute resolution provisions in FIDIC's model contracts adopt a multi-tiered approach that starts with adjudication before a Dispute Adjudication Board.11 The Dispute Adjudication Board's decisions are binding on a provisional basis and become final unless either party issues a notice of dissatisfaction within 28 days of receipt. In that event, the next step is for the parties to seek to resolve the dispute through a negotiated and agreed amicable settlement based on direct negotiations or some other process such as mediation or conciliation.12 Either party may then refer the matter to final and binding arbitration.13 FIDIC's model contracts reflect a strong institutional preference for arbitration before a three-member tribunal under the ICC Rules of Arbitration, which is the default mechanism unless the parties agree otherwise.14
The FIDIC model contracts leave it to the parties to make important choices, such as which country will be designated as the "seat" of the arbitration. The arbitral seat determines the applicable procedural law, the court with supervisory jurisdiction over the arbitration, the venue and law for proceedings to set aside the final award, and issues that may affect the enforceability of the award. The FIDIC model contracts likewise allow, but do not prescribe, provisions on joinder in disputes involving multiple parties or multiple agreements. Thus, whether they use a FIDC model contract or another contract structure, parties are advised to consult arbitration counsel about dispute resolution options and considerations before entering contracts to construct data center projects.
Commercial Disputes Over the Operation and Management of Data Centers
Parties also may need to resolve commercial disputes arising during the use and operation of data centers and may wish to do so through arbitration rather than litigation, especially where the parties are nationals of different countries. Amongst other advantages, international arbitration provides the parties autonomy and flexibility to tailor their procedure and to choose a neutral decision-maker or decision-makers with desired technical or other expertise. The process is private and confidential, whereas litigation pleadings and decisions in the United States are generally available to the public. Awards issued by an international arbitration tribunal also are final and binding, are not subject to appeal, and may only be vacated in limited circumstances. Another important benefit is that award creditors may pursue recognition and enforcement in a simplified process in over 170 countries around the world.15
Even before AI spurred the current boom in data center construction, several disputes over the management and operation of data centers ended up in arbitration. For example, in Blackboard v. IBM, the tribunal decided in IBM's favor and found Blackboard improperly withheld more than USD 29 million under their professional services agreement governing data center operations and cloud migration.16 In O'Brien v. Cohere A9, the tribunal ordered the respondent to release escrow funds under an equity purchase agreement and dismissed its counterclaims of "fraud" for alleged misrepresentations and failures to disclose that the data center underlying the transaction ran on antiquated and inadequate equipment and was underpowered.17 And in RTI & Russell Matulich v. Gateway Network Connections, the tribunal found that the respondents improperly terminated the claimant from his position as CEO and director of the party that held a 51% controlling interest in a joint venture to operate a new data center in Guam. The tribunal ordered his reinstatement and that the parties act in good faith to rectify non-conformities in the project so it could pass inspection.18
In short, the new boom in data center construction in nations across the globe could lead to disputes between data center owners and operators and host states over State conduct that could threaten the viability of these sizeable investments. As an added measure of protection, owners and developers would be well advised to consider as part of project planning whether there are holding structures that make economic sense that would benefit from an applicable investment protection treaty. The increase in data center projects also will almost certainly lead to an increase in disputes between owners/developers, general contractors, suppliers and other parties that can be resolved efficiently, fairly and confidentially through well designed contractually agreed mediation and arbitration. White & Case's international arbitration practice is recognized as preeminent in commercial, construction and investor-State cases, including how to structure investments and negotiate contracts to optimize owner/investor protection.
1 White & Case Insight, Intelligent Design: Constructing next generation data centers for the AI boom, 19 Feb. 2025 (accessible here).
2 White & Case M&A Explorer, Buy the power: Data center deals on the rise in the US, 7 Mar. 2025 (accessible here).
3 Our M&A team found 81 reported deals valued at US$ 46.4 billion last year, including 24 reported deals for US$ 15.7 billion in the US. White & Case M&A Explorer, Buy the power: Data center deals on the rise in the US, 7 Mar. 2025 (accessible here).
4 CBRE, Asia Pacific Data Center Trends & Opportunities, 29 Mar. 2025 (accessible here); White & Case Insight, Data centre boom in Latin America calls for accelerating infrastructure investment, 18 Nov. 2024 (accessible here).
5 Michelle Donegan, Data center investment on the rise in Africa (accessible here); see also, e.g., Microsoft, Microsoft and G42 announce $1 billion comprehensive digital ecosystem initiative for Kenya, 22 May 2024 (accessible here) (discussing data center investment in East Africa).
6 U.S. Department of Energy, DOE Releases New Report Evaluating Increase in Electricity Demand from Data Centers (accessible here).
7 See, e.g., Financial Times, Meta agrees 20-year deal to buy output from Illinois nuclear plant (accessible here); Reuters, Talen Energy and Amazon sign nuclear power deal to fuel data centers (accessible here); Constellation, Constellation to Launch Crane Clean Energy Center, Restoring Jobs and Carbon-Free Power to The Grid, 20 September 2024 (accessible here).
8 IBD Digital, AI Is Fueling A ‘Nuclear Renaissance.’ Bill Gates And Jeff Bezos Are In The Mix (accessible here).
9 Research markets, Africa Data Center Construction Market 2025-2030: Modular Data Centers are on the Rise, Offering Scalable, Energy-efficient Solutions for Gradual Expansion As Demand Increases, 20 February 2025 (accessible here); White & Case Insight, Data center boom in Latin America calls for accelerating infrastructure investment, 18 Nov. 2024 (accessible here).
10 White & Case Tech Newsflash, Do BITS and bytes bite? Investment treaty arbitration for technology disputes, 26 July 2022 (accessible here).
11 Ellis Baker, FIDIC Contracts Law and Practice at 508 ¶ 9.19. See also FIDIC Red Book, Sub-Clauses 20.2, 20.4; FIDIC Silver Book 20.2,20.4; FIDIC Gold Book Sub-Clauses 20.3, 20.4, 20.6, 20.10.
12 Ellis Baker, FIDIC Contracts Law and Practice at 505, 509 ¶¶ 9.2, 9.20, 9.171, 9.174. See also FIDIC Red Book, Sub-Clauses 20.2 to 20.8, FIDIC Silver Book 20.2 to 20.8; FIDIC Gold Book Sub-Clauses 20.3 to 20.11.
13 Ellis Baker, FIDIC Contracts Law and Practice at 505, 509 ¶¶ 9.2, 9.20. See also FIDIC Red Book, Sub-Clauses 20.2 to 20.8, FIDIC Silver Book 20.2 to 20.8; FIDIC Gold Book Sub-Clauses 20.3 to 20.11.
14 Ellis Baker, FIDIC Contracts Law and Practice at 544 ¶ 9.182. See also FIDIC Red Book, Sub-Clauses 20.6 to 20.8, FIDIC Silver Book 20.6 to 20.8; FIDIC Gold Book Sub-Clauses 20.8 to 20.10.
15 Contracting States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 10 June 1958) (accessible here) (listing 172 contracting States).
16 Blackboard, Inc. v. International Business Machines Corporation, AAA Case No. 01-19-0003-0863.
17 Steven O’Brien v. Cohere A9, LLC, AAA Case No. 01-15-0005-5260.
18 RTI Connectivity Pte. Ltd. and Russell Matulich v. Gateway Network Connections, LLC, DPR Case No. 21-0272-A.
[View source.]
