Morag Evans | CEO | Databuild | mail me |
At the beginning of the year, there was cautious optimism that the construction environment, while still constrained, might at least become more predictable. However, that optimism did not last.
Within weeks, the Iran conflict and disruptions to global energy markets pushed fuel prices sharply higher. The knock-on effects spread across the entire construction delivery chain. They affected plant operations, transport, materials, labour allocation and project timelines.
Fuel has become a fault line in construction
Fuel increases are often treated in isolation. However, they influence how materials move, how equipment operates, how sites are resourced and how schedules are managed. A delay in transport quickly becomes a delay in project execution. Consequently, the market is experiencing not only higher costs but also growing pressure on project viability. This demonstrates how fuel price volatility reaches far beyond the cost of filling a fuel tank.
There is a persistent assumption within the industry that a sufficiently large or unexpected cost increase can always be recovered. Unfortunately, reality works differently. Construction contracts do not respond to external pressure. Instead, they respond to what the parties originally agreed.
If a contract includes mechanisms such as Continuous Positive Airway Pressure (CPAP), contractors have a structured way to recover part of the increase, even if the adjustment lags behind actual market pricing. However, if the contract excludes those mechanisms, recovery becomes much more difficult. In those circumstances, contractors generally carry the financial risk unless very specific grounds for recovery exist.
Many people misunderstand this principle, but it remains the foundation of the contractual system.
How contracts are managed
Recent industry discussions have highlighted that the issue extends beyond fuel price increases themselves. Instead, many projects remain unprepared to deal with fuel price volatility effectively.
Too often, contractors attempt to pursue recovery before carefully reviewing the contract. They submit notices late or fail to submit them altogether. They also maintain incomplete records and prepare claims retrospectively instead of documenting events in real time.
By the time the financial impact becomes fully visible, the contractual position has often already weakened. As a result, claims are rejected, disputes escalate, and cash flow comes under even greater pressure.
The uncomfortable truth
The industry also faces a deeper issue that it does not always want to acknowledge. When contractors sign contracts without escalation provisions, they effectively make a commercial judgement about future market conditions. Sometimes that judgment proves correct. At other times, it does not.
When market conditions move against the contractor, opportunities to renegotiate become extremely limited. Courts have consistently upheld the principle that parties remain bound by the agreements they voluntarily enter into.
A poor commercial outcome alone does not justify contractual relief. That reality is particularly challenging in a market where profit margins are already thin. Nevertheless, it reinforces an important lesson. Risks that parties fail to price or allocate at the outset inevitably reappear during project execution.
Recovery options
This does not mean contractors have no recovery options. Where employer-related delays occur, contractors may recover costs through expense and loss provisions. Similarly, where supply disruptions affect programme timelines, extension-of-time claims may become available.
However, these remedies remain conditional. They depend on establishing causation, demonstrating contractual compliance and maintaining proper documentation. They do not provide a blanket solution for rising fuel costs or fuel price volatility. That distinction matters because it separates what appears fair from what the contract actually allows.
Facing the reality
The current situation highlights more than rising fuel prices. It also exposes a structural weakness in the way many projects identify, allocate and manage risk. Too often, project teams simply build fuel costs into their rates without actively managing fuel as a defined project risk. Consequently, when market conditions change, their response becomes reactive rather than strategic.
That approach is no longer sustainable. The construction industry is operating in an environment where certain inputs, particularly fuel, have become too volatile to ignore. Project teams must treat these risks differently. That may require more deliberate use of escalation mechanisms, more flexible contractual provisions or earlier engagement between employers and contractors whenever conditions change. It will certainly require greater discipline in contract administration.
Fuel price volatility may eventually stabilise. However, the exposure it has revealed will remain. This is not merely another cost event. It is a test of how well projects are structured, how thoroughly contracts are understood, and how effectively project teams manage risk in practice.
For many contractors, the difference between surviving this cycle and being forced out of the market will not depend solely on fuel prices. Instead, success will depend on whether they treated the contract as a formality or recognised it as the project’s operating system from the very beginning.
