What the Road Transport Contractual Chain Order means for industry

The Order continues until the weekly average national terminal gate price for diesel (Australian Institute of Petroleum) falls below $2.00 per litre. There are no sunset provisions or other revocation mechanisms.

How the Order applies to your building business

This is where significant uncertainty exists and where members must exercise caution. The Order is broader than many assume.

The Order applies to businesses across covered road transport contractual chains. Its reach is not limited to transport businesses. As one employment lawyer has observed, the Order "captures virtually every business that engages road transport services." The two categories of covered party are:

Primary parties - top of the supply chain:

This includes businesses who engage transport services because they need goods moved by road. This may include manufacturers, large retailers, construction companies, developers, building material suppliers. Obligation: Adjust rates paid to transport operators at least fortnightly to cover fuel cost increases. 

Secondary parties – further down the chain:

Transport operators, fleet owners, transport subcontractors, logistics businesses and digital labour platforms. Obligation: Pass on increased payments to the next party below them in the chain, down to the drivers and contractors who bear the fuel cost. 

To assess applicability, key questions building businesses need to ask are:

• Do you engage couriers, freight operators or any contractor to move building materials, equipment or supplies by road? 
• Do you sit anywhere in a supply chain that involves road transport? 
• Are the transport operators or subcontractors you engage 'regulated workers' under the Fair Work Act? 

If the answer to any of these is possibly yes, you need to investigate further. Coverage does not depend on the type of goods transported, only on whether the relevant workers fall within the regulated worker definition.

The FWC will need to provide further guidance on several unresolved coverage questions, including which workers and arrangements are captured under the regulated worker definition.

HIA strongly advises members not to assume either coverage or non-coverage without reviewing and assessing their individual arrangements and contracts.

Non-compliance assessed after the fact: because adjustments are measured against publicly available diesel price data, compliance (or non-compliance) can be established well after the event. The risk increases with inaction.

Your compliance responsibilities

Rate adjustments

Contractual rates must be adjusted to ensure real and effective recovery of fuel cost increases. Acceptable forms of adjustment include base rate increases, fuel levies, or direct reimbursement or cost adjustment arrangements.

Timing

Adjustments must occur at least fortnightly, or twice per calendar month. End-of-contract reconciliations are not sufficient.

Through-chain responsibility

Primary parties must take reasonable steps to ensure that payments flow through to downstream parties. While there is no guidance on what this requirement specifically entails, passive reliance on others in the chain is unlikely to satisfy this obligation. Exception: The through-chain policing obligation does not apply to small business employers with fewer than 15 employees who are not road transport businesses. This is a meaningful carve-out for many HIA members, however it relates only to the downstream monitoring obligation, not to a business' own compliance obligations as a primary party.

Fixed-price contracts

The Order expressly provides that fixed-price or long-term contracts are not a defence. Existing contracts may need to be varied or renegotiated to comply. Members should seek legal advice before taking any steps to vary contracts or resist claims.

As this is an order by the Fair Work Commission rather than a statutory change of a building regulation nature, it does not ordinarily give rise to a ‘deemed’ variation under a building contract.

What you need to do

• Map your supply chain. Identify every contract or arrangement under which goods are moved by road. Determine whether your business sits as a primary or secondary party, or both. 
• Review your contracts. Identify fixed-price or long-term contracts that do not include fuel adjustment mechanisms. Flag arrangements that may now be non-compliant. 
• Seek legal advice. Confirm your coverage position and understand your specific obligations before making, or refusing, any rate adjustments. HIA strongly advises not to vary contracts without advice. 
• Engage your transport operators and subcontractors now. Early proactive engagement reduces dispute and enforcement risk. Silence is not a defence.
• Prepare compliant adjustment mechanisms. Determine whether you will use the FWC benchmark calculation or individual pricing. 
• Document everything. Record all steps taken to assess and respond to your obligations. This documentation will be essential in any enforcement or dispute context. 

How HIA is advocating for members

HIA does not oppose fair remuneration for road transport contractors. However, HIA has made clear to the Fair Work Commission and to Government that the residential building sector faces a structural problem the Order does not resolve: builders operating on fixed-price contracts have no legal mechanism to pass fuel cost increases on to their clients.

Approximately 100,000 fixed-price residential building contracts are currently active. These contracts were executed months before current fuel disruptions and typically run for 6 to 12 months. HIA is hard-pressed to identify another sector in which businesses must absorb these increases with absolutely no avenue for recovery.

HIA is actively seeking from Government:

• An exemption for residential construction from the Order's obligations, or a rebate mechanism to address unrecoverable costs on existing fixed-price contracts. 
• Recognition that the rushed legislative and consultation process, including a three-hour consultation window on the Fairer Fuel Act with unprecedented limitations by the Commission for the hearings, was procedurally inadequate. 
• A commitment by Government to first ‘do no harm': to refrain from introducing further legislative, regulatory or other cost imposts on the housing industry at a critical juncture for supply. 
• HIA is engaging directly with Government and with Federal Treasury. We will keep members updated as this advocacy progresses.

The above is intended to provide general information in summary form. The content does not constitute specific advice and should not be relied upon as such. Formal advice should be sought by members and customers with respect to particular matters before taking action.