Soaring diesel prices are placing South African construction contractors under mounting financial strain, with many contracts offering limited protection against sudden fuel-cost spikes.
Source: Supplied. Clairize Malan, senior associate at MDA Attorneys.
Construction law specialist MDA Attorneys has warned that the window to recover additional costs is narrowing rapidly, as contractors increasingly seek advice amid rising input prices linked to the US-Iran conflict and disruptions in the Strait of Hormuz.
The firm, which advises across standard construction contracts, cautions that most claims will be assessed under FIDIC frameworks widely used in the sector.
"This is no longer a theoretical risk," says Clairize Malan, senior associate at MDA Attorneys. "Diesel has jumped within a short time. For contractors running plant-heavy operations, that is a material hit to the bottom line. Most standard contracts were simply not designed to assist contractors in absorbing a shock of this magnitude."
Under many FIDIC contracts, price adjustments are agreed upfront using formulas and indices, by means of a mechanism known as contract price adjustment (CPA). While CPA clauses are designed to account for fluctuations in the cost of labour, materials and fuel, they are calibrated against longer-term trends. The CPA mechanism is not built to account for sudden, steep price spikes driven by geopolitical conflict.
When oil prices jump sharply over a short period, as they have since February 2026, contractors may find the CPA mechanism does not cover the gap, leaving them to absorb the shortfall themselves.
Fuel pressure mounts
The situation is set to worsen. May's official fuel prices were calculated based on Brent crude averaging below $101 per barrel, but oil has since traded higher following the collapse of US-Iran peace talks.
June's prices are likely to be higher still. And from June, the government's temporary fuel-levy relief, which has been cushioning South African consumers and businesses from the full impact, will begin to be phased out, falling away entirely in July. Contractors are therefore facing rising global prices and a rising structural price floor simultaneously.
Jo-Anne Smetherham and Yanga Malotana 3 days With CPA clauses offering limited relief, some contractors are looking to force majeure provisions as an alternative avenue for recovery. FIDIC's force majeure clause allows a contractor to claim costs where it is prevented from performing its obligations due to an extraordinary event, and war is specifically listed as one of those events. Recoverable costs include expenditure reasonably incurred by the contractor, whether on or off-site.
But relying on force majeure is not straightforward. It depends on how the contract defines war and whether that definition extends to conflicts beyond South Africa's borders.
"Employers will typically push for the narrower interpretation, which limits their exposure," explains Malan. "Contractors understandably prefer a wider reading that would allow them to recover costs flowing from conflicts beyond our borders.
"Whether a contractor can recover these costs ultimately depends on how the contract is interpreted. However, you cannot even have that argument if you have failed to give notice of a force majeure event."
Claims window closing
This is where many contractors are at the greatest risk. Under FIDIC, a contractor who fails to give timely notice of a force majeure event loses the right to claim altogether. For contractors who have not yet issued notices, each week of inaction further weakens their position. In some cases, it may extinguish their claim entirely.
MDA Attorneys is urging contractors to act now on three fronts: examine whether their CPA formulas adequately cover increases in oil-linked costs; assess whether force majeure notices should be issued immediately; and ensure that cost records are being meticulously maintained.
"The construction industry is already operating on tight margins," says Malan. "Contractors cannot afford to wait and see. They need to understand their contractual position now, take the right steps to preserve their claims, and engage with employers early. The longer this is left, the harder it becomes to recover these costs."
MDA Attorneys continues to monitor developments and advise clients across the full range of standard-form contracts. Contractors operating under NEC, JBCC and GCC contracts face different contractual positions and should seek advice tailored to their specific agreements.
