A practical look at the Fair Work Commission’s fuel cost recovery order and where it may impact local government contracts
On 21 April 2026, the Fair Work Commission introduced a Road Transport Contractual Chain Order – Fuel Cost Recovery (the Order) requiring entities ‘in a road transport contractual chain’ to adjust contract pricing to reflect increases in fuel costs. The Order is intended to operate until the weekly average national terminal gate price for diesel, as reported by the Australian Institute of Petroleum, falls below $2.00/L, although this is subject to review.
While the Order is aimed primarily at protecting transport operators, it has flow‑on implications for Councils across delivery, waste, and infrastructure contracts.
The Order applies broadly to all work in the road transport industry, binding:
- Primary parties, being those at the top of the contractual chain who first engage transport services;
- Secondary parties, being those further down the chain who subcontract transport work; and
- Road transport businesses, employee-like workers, and regulated contractors performing work.
The Order requires primary and secondary parties to, at least twice per calendar month, adjust contract rates to ensure recovery of increased fuel costs (by reference to fuel prices on or before 6 March 2026). Primary parties must also take reasonable steps to ensure those adjustments flow down the chain, so that increased fuel costs are recovered by transport contractors, owner-drivers or employee-like workers.
Adjustments can be made via fuel levies, rate increases, reimbursements, or ‘rise and fall’ mechanisms. Existing clauses may already meet this requirement in many cases, in which case no further action may be required beyond ensuring the mechanism appropriately captures fuel cost increases.
Implications and coverage
The key consideration for Councils is identifying which contracts form part of a ‘road transport contractual chain’. In practice, Councils may be caught wherever transport is part of the contracted service, including:
- waste collection and disposal;
- contracts for the supply and delivery of goods; and
- services involving the movement of materials off‑site.
By contrast, contracts are less likely to be directly captured where Council is passively receiving goods, and transport is not explicitly part of the contractual scope. In these cases, Councils should be aware that fuel cost increases may still be passed through indirectly via price adjustment or “change in law” claims from contractors within the transport chain.
The position of construction contracts is less clear and many contracts will likely not be directly targeted, but may still be affected where transport is embedded in the delivery of materials. Similarly, plant hire will generally fall outside the Order where equipment is operated on site, but the transport of that plant to and from site may still be captured. The first review of the Order will occur on 25 May 2026 and further clarity might be provided by the Fair Work Commission after that date.
What should Councils do?
Where the Order applies, Councils (as primary parties) must ensure that increased fuel costs can be recovered, with pricing reviewed at least twice monthly. In many cases, existing rise‑and‑fall clauses or monthly adjustments may already satisfy the requirement, provided they address fuel costs in substance.
Councils should prioritise contracts where transport is explicit in the contract, and adopt a consistent, RTCCO‑linked mechanism (such as a fuel levy or index‑based adjustment). In grey areas, a more cautious approach is appropriate, responding to contractor requests as necessary and as further guidance regarding application is provided by the Fair Work Commission (with the first review in late May).
Where adjustments are required, they should be targeted to the transport component only, avoiding broad increases across the entire contract where these are not caught by the Order.
Key takeaways
- The Order is triggered where contracts include road transport as part of the service, and is broader than simple contracts for the road transport of goods;
- Beyond supply-and-delivery arrangements, contracts for waste management services, material removal and hauling services are likely captured;
- Construction and plant hire contracts remain grey areas, with risk typically limited to the transport component;
- Existing rise and fall mechanisms should be reviewed to confirm they adequately capture fuel costs, with a clear and consistent adjustment approach adopted where gaps exist; and
- Councils should identify contracts involving transport and take reasonable steps to ensure rate increases are implemented down the chain, particularly where delivery or haulage forms part of the service and check for further clarity on application of the Order after 25 May 2026.
If you require any further information, please reach out to our Construction and Major Projects team.