The rush by developers to enter Australia’s data centre boom risks contractual frameworks being left behind, the Australasian Professional Indemnity Group (APIG) annual conference was warned.

Australia is already the world’s second biggest data centre investment destination behind the US, with $6.7bn spent in 2025, and in a panel session, Iain Drennan, head of Australasian construction at WTW, tipped this to “accelerate in multitudes” over the next three to five years.

But while the country’s data centre journey is exciting, he says the rapid expansion draws uncomfortable parallels with the renewable energy boom 10 years ago, “where everyone was racing to build solar and the like”. 

“In that instance the contractual framework throughout the chain took a while to catch up and I’m seeing that in the data centre space.

“Whether you’re a developer, a hyperscaler, a head contractor, a sub-contractor – everyone’s rushing to get a piece of this pie. From a contractual allocation framework perspective, I see that we’re probably not quite there yet. Probably several years away from it.”

Alicia Albury, property lawyer at White & Case agreed that “we’re so early in our data centre journey in Australia that we haven’t even really worked out yet what asset class data centres fall into”.

“It feels all of a sudden data centres are their own asset class and people are scrambling to work out what the market means and how we treat them from an investment and development perspective.

“And added to that we have two types of developer. The traditional property developers who are moving into data centre development and energy players who are looking at it as an energy infrastructure project and those two groups speak a different language.”

Swiss Re’s Andre Martin said from an insurer’s perspective the main issue is the eco-system surrounding data centres, including heavy assets such as power plants and cooling plants.

“The concern for us is how do we get our heads round the interdependencies of all these systems?

It’s a combination of scale, speed and technology and everything happens at the same time,” he said.

Mr Martin added that while the US clusters are far bigger, the scale of value concentration in the Australian centres is an issue. He also warned of “design accumulation” where one fault in design could impact multiple data centres.

Ms Albury said from a real estate point of view, there has been a big power shift from traditional real estate leases, where a landlord’s obligations are fairly passive, to the service agreements being pushed for in Australia by hyperscalers, where landlords’ risks are a lot higher. She said their obligations are detailed, tested, monitored and measured continuously.

“Those obligations are owed 24 hours a day, seven days a week to the tenant and there’s a pre-agreed amount of penalty that’s applied and it’s reduced from the recurrent fee which is a form of rent. So there’s no certainty of rent coming in and the hyperscaler tenant has termination rights they just wouldn’t have under a traditional lease scenario.”

WTW’s Mr Drennan warned of significant potential exposure for contractors, both due to the value of server racks in data centres and the large liability caps they face.

“Contractually they’re almost never responsible for the installation of the server racks but there is often overlap between the sort of routine practical completion and the installation of the server racks so you’ve obviously got damage possibility. If damage occurs because of professional error in the design and contract phase, it can be huge.

“Most importantly, we almost always see that insurance proceeds in no way shape or form reduce that liability cap. So it’s a liability cap on top of insurance processes, but very large exposure for our clients.”

Swiss Re’s Mr Martin said there is currently little experience in terms of PI claims in the sector, but determining what actually constituted professional negligence would be a challenge because the standards and technology are so quickly evolving.

“What was best standard yesterday is already outdated tomorrow. So the [first] question is what would the competent professional have done or known at the time he provided the advice? The second is more about attribution in this complex ecosystem you have – who is responsible for the failure? In a cooling plant, that could have originated in the installation, the design, engineering, manufacturing, maintenance, operations. Where does it actually originate?”

Mr Drennan said contractors are not taking out project-specific PI policies and are just relying on their annual insurance programs being sufficient for billion-dollar projects.

“Is 10, 20, 50 million dollars enough? I don’t think we’ve given due thought about the adequacy of those. Is it just a drop in the ocean?”

He also questioned whether current insurance products adequately addressed the intersection of property damage and cyber incidents.