Businesses in road transport contractual chains should not assume that fuel cost recovery obligations – which were intended to support transport operators with high fuel costs – have disappeared simply because diesel prices have recently fallen below the $2 per litre threshold.
Proposed amendments to the Road Transport Contractual Chain Order (RTCCO), which commenced on April 21, could affect when those obligations cease and whether they can restart if fuel prices rise again.
The RTCCO requires increased fuel costs to be passed through contractual chains when the relevant obligations are operating. It also creates legally enforceable obligations for businesses involved in road transport contractual chains.
In this article, Business Law WA Legal Director Commercial Law Cass Wright explains how the order can apply to your business – including the proposed amendments currently under consideration – and what steps businesses should take to manage compliance.
What is the Road Transport Contractual Chain Order?
The RTCCO was introduced by the Fair Work Commission (FWC) following an urgent application by the Transport Workers' Union of Australia and the Australian Road Transport Industrial Organisation in response to significant increases in fuel prices.
“At its core, the order is designed to ensure that increased fuel costs are passed through the road transport contractual chain in a transparent and timely way,” Wright said.
The order is enforceable in the same way as a modern award, with non-compliance attracting significant penalties.
Who does the order apply to – and how?
The RTCCO applies broadly across road transport contractual chains.
Wright said many businesses did not realise the order applied to them.
“The order is not limited to traditional transport companies. It can also affect businesses that engage, arrange, procure, benefit from, or sit within road transport supply chains,” she said.
“Any business that sits in a contractual chain involving road transport work needs to understand whether it has obligations, and whether its contracts are capable of dealing with them.”
| What the order does | Who it applies to |
|
|
|
|
|
|
|
How can businesses comply?
There are several mechanisms businesses can use to recover increased fuel costs, including:
- Fuel levies or surcharges
- Rate adjustments
- Direct reimbursement or offsets
- Existing rise-and-fall clauses
- Other contractual cost variation mechanisms
However, Wright said the mechanism must “genuinely” recover increased fuel costs and operate at least twice a month.
“The order can override existing commercial arrangements and contracts and is legally enforceable like a modern award,” she said.
“Non-compliance can attract maximum penalties of $99,000 per contravention for body corporates.”
Why contracts matter
According to Wright, compliance is a contractual and operational issue.
“Businesses need a mechanism that is lawful, commercially workable, capable of being applied at least twice each calendar month, and supported by evidence across the contractual chain,” she said.
Businesses should ask four key contract-related questions:
- Does the contract allow pricing to change? If the contract contains fixed rates with no variation mechanism, the parties may need to amend the contract or agree on a supplementary fuel recovery mechanism.
- Is the mechanism limited to fuel cost recovery? The adjustment should be clearly confined to the increased cost of fuel. This helps avoid disputes and reduces the risk that the mechanism is seen as an attempt to recover unrelated costs.
- Can adjustments be reviewed at least twice each month? A clause that only allows quarterly, six-monthly or annual price reviews may not be sufficient for RTCCO purposes unless it is supplemented by a separate fuel cost recovery mechanism that is compliant with the order.
- Can the business prove what it has done? This is where audits and evidence are critical.
Understanding rise-and-fall clauses
Many businesses already have rise-and-fall clauses – which make the contract price move up or down automatically when a cost driver changes – in place. But these clauses may not be automatically compliant with the RTCCO.
A compliant clause should clearly set out:
- The fuel price benchmark
- The baseline price
- The calculation formula
- The review cycle
- How adjustments are applied
- What evidence is required
- When the mechanism pauses or ceases
Proposed changes to the order
The FWC is considering changes to how and when fuel recovery obligations switch off. One option could be requiring diesel prices to remain below $2 per litre for four consecutive weeks before obligations cease.
The FWC is also reviewing whether it should be able to reinstate the obligations if fuel prices rise again. Submissions on the appropriate course are open until July 3, 2026.
What businesses should do now
Businesses should not assume that the recent fall in diesel prices below the $2 threshold removes the need for active contract management.
While the fuel recovery obligations have currently ceased, the FWC is still considering changes that could affect how the rules stop and start.
“The RTCCO is not just a legal compliance issue; it is a contract administration issue,” Wright said.
“With further amendments to the order still under consideration, businesses should avoid rigid drafting and ensure their contracts can respond to future changes.”
Businesses should:
- Review existing contract terms
- Monitor further changes to the order
- Seek legal advice where necessary
Need support?
Business Law WA can assist businesses in understanding their obligations, reviewing commercial contracts and implementing practical fuel recovery mechanisms that align with the RTCCO.
Contact [email protected] or call 08 9365 7560.
This article is authorised by Business Law WA, an incorporated legal practice and wholly owned subsidiary of CCIWA. The content of this article is general in nature and is not legal or professional advice and should not be relied upon as such.
