Crude awakenings: contractor claims in the fuel crisis

The conflict in the Middle East is continuing to unfold, and even if the conflict comes to an end, it is likely to cast a long shadow over the region, leaving us with ongoing instability and drawn out trade impacts – many of which have not yet been fully realised. Many immediate impacts have already begun to hit Australian businesses and worksites. It is therefore important to consider the consequences on your projects and how your contracts will handle those pressures.

How can the construction contract handle crisis?

Unamended Australian standard forms usually fix the contract sum and do not include general “rise and fall” or commodity escalation mechanisms. Absent a bespoke clause, market movements in inputs (eg. fuel, materials and labour) sit with the contractor.

However, in practice, very few active Australian contracts will have a simple fixed contract sum. Most will contain some form of cost adjustment mechanism, and for contracts still being negotiated, the question is quickly becoming which model to adopt.

Rise and fall

Of the contractual mechanisms available to contractors in the current environment, "rise and fall" or "cost adjustment" mechanisms are arguably the most directly relevant – especially for parties currently negotiating or drafting contracts. Each is purpose-built for exactly the kind of sustained, measurable input cost escalation that the market is now experiencing. However, parties seeking to include such clauses should ensure they are drafted carefully to respond meaningfully to the scale and speed of the cost movements now being seen across the industry.

There are two broad models we see emerging: quantity-based and price-based.

The quantity-based model adjusts the contract sum by applying movements in a relevant published price index to the actual quantities of an input (such as fuel or materials) ordered or delivered during the works, often employing index-based thresholds to share risk and trigger adjustments. Because this model is tied to actual quantities, the adjustment reflects real consumption rather than a notional allocation. There are increasingly administratively burdensome levels of granularity with which the adjustments can be applied: the more accurate the cost recovery sought, the more granular the tracking of quantities required.

The price-based model takes a fundamentally different approach. Rather than tracking physical quantities, it disaggregates the contract price into notional cost components – for example, plant, labour, and materials (whether aggregated or separated out) – and adjusts each by a different published index which is applied to the value of certified payment claims. It operates at a portfolio level and is largely self-calculating from payment records and published indices. It is simpler to administer, but because it relies on economy-wide indices as a proxy, the contractor receives the index uplift whether or not it actually experienced that precise price movement.

As contractors may be looking for one of these mechanisms, principals procuring works should be ready with a position on which model they are prepared to offer and what risk controls they will put around it.

Open book

As an alternative to a "rise and fall" clause, parties may adopt an "open book" or "open book pricing" clause. With these clauses, the supplier or contractor is required to maintain transparent financial records related to contract performance, and to provide the principal with access to detailed accounts, invoices, and supporting documentation in relation to actual costs incurred. The contractor is typically entitled to make a claim for the additional cost actually, reasonably and directly incurred. In some cases, a pre-agreed amount or percentage is added on top for profit or overheads.

While an open book approach promotes transparency, it also runs the risk of rapid escalation in costs. Consequently, these clauses and their coverage and limitations must be carefully drafted.

What about contracts currently on foot?

Force majeure

Force majeure is a creature of contract, meaning the effect given to the clause is entirely subject to contractual interpretation principles, so it is important to seek legal advice and consider:

• what categories of triggering events does your definition of force majeure include and what is the scope of each category?

• whether there is a nexus to the works or the site. For example, a conflict occurring in the Middle East may not satisfy that causal requirement in relation to an Australian construction project.

• that increased cost does not equate to prevention of performance. A force majeure clause typically requires performance to be prevented or significantly impeded, and a substantial rise in price will not, without more bespoke drafting, satisfy that threshold.

Change in law

Change in law clauses usually entitle a party to an adjustment to the contract price and/or an extension of time when new legislation is introduced or changed after a defined baseline date and affects the cost or manner of performing the works. These clauses are distinct from force majeure in that they anticipate a regulatory event occurring and seek to pass through the resulting costs, rather than excusing or suspending performance.

The Road Transport Contractual Chain Order (RTCCO) made by the Fair Work Commission on 20 April 2026 is a recent example of a possible change in law trigger (see below for more detail). Whether the RTCCO constitutes a change in law under a given contract will depend, amongst other things, on the breadth of the definition of "Law" and "Change in Law" in that contract. For example, if the definition of "Law" is broad enough to include orders of a tribunal, the RTCCO is likely captured, whereas if it is limited to Acts of Parliament, it will not be.

Looking ahead, if later stages of the Government's National Fuel Security Plan are triggered, further regulatory changes may follow, and any such intervention may itself constitute a further change in law.

Extension of time

Extension of time clauses provide the contractor with relief from liquidated damages and certain time related obligations, by adjusting the date for practical completion (or other milestone dates) when qualifying delays occur. However, viable pathways for extension of time claims are limited in the current crisis.

That said, there may be specific supply chain issues that do create genuine delay: for example, if transport of materials or equipment is delayed and a contractor is incurring holding costs, there may be an argument for recovery of those holding costs (depending on how these issues are treated in the relevant contract). Extension of time clauses should be reviewed to determine whether any delay rights will be triggered.

Road Transport Contractual Chain Order

A further development relevant to contractors operating within or adjacent to the road transport industry is the RTCCO, made by the Fair Work Commission (FWC) on 20 April 2026 as an emergency measure in direct response to the fuel price crisis arising from the Middle East conflict and the closure of the Strait of Hormuz.

In short, the RTCCO requires parties within a "road transport contractual chain" to adjust the rates paid to their counterparties at least fortnightly to ensure recovery of increased fuel costs. The RTCCO imposes a mandatory cost pass-through obligation on parties in road transport contractual chains, regardless of whether their underlying contracts provide for fuel cost adjustment. Where contracts already contain rise and fall provisions, fuel levy clauses, or other benchmarking methodologies that account for the increased cost of fuel, those mechanisms may satisfy the RTCCO's requirements without further action. However, where contracts are fixed-price or do not include adequate fuel cost adjustment provisions, parties will need to make supplementary arrangements to comply with the order.

A hearing was held in Sydney on 25 May 2026 at which industry groups and unions made submissions on issues arising from the RTCCO's application. Further guidance from the FWC is expected in the coming weeks.