Diesel Price Spike Impacts Construction Contractors’ Profits

Johannesburg – Numerous construction contractors in South Africa find themselves with minimal or no protection against the escalating diesel costs, significantly affecting the financial stability of those operating heavy machinery.

With the ongoing conflict involving Israel and the United States on one side and Iran on the other, the crucial Strait of Hormuz remains blocked, resulting in diesel prices reaching all-time highs.

MDA Attorneys, specialists in construction law, have noted a sharp increase in inquiries from contractors struggling with rising fuel and material costs. They warn that many contracts provide minimal protection against such surges, and the opportunity for contractors to reclaim additional costs is rapidly diminishing.

MDA Attorneys advise clients on various standard construction contracts and caution that the recent spike in oil prices is likely to be addressed under FIDIC, one of the prevalent frameworks in construction contracts.

“This is no longer a theoretical risk,” stated Clairize Malan, senior associate at MDA Attorneys, on Monday, 11 May 2026.

“The price of diesel has surged in a short period. For contractors relying on heavy machinery, this is a substantial blow to profitability.

“Most standard contracts were simply not designed to help contractors absorb shocks of this scale.”

Many FIDIC contracts have predefined price adjustments using formulas and indices through a mechanism known as contract price adjustment (CPA).

While CPA clauses account for fluctuations in labor, materials, and fuel costs, they are usually based on long-term trends.

The CPA mechanism is not intended to handle sudden, severe price increases resulting from geopolitical tensions.

When oil prices rise sharply over a short duration, as they have since February 2026, contractors may find the CPA mechanism inadequate, forcing them to bear the costs themselves.

The situation is anticipated to worsen.

The official fuel prices for May were based on Brent crude averaging under $101 per barrel, but following the breakdown of US-Iran peace talks, oil prices have increased further.

Prices for June are expected to rise even more.

Additionally, starting in June, the government’s temporary relief on fuel levies, which has been alleviating the impact on South African consumers and businesses, will begin to be gradually removed, completely disappearing by July.

Thus, contractors are facing both rising global prices and a higher structural price floor simultaneously.

Given the limited relief from CPA clauses, some contractors are exploring force majeure provisions for potential recovery.

FIDIC’s force majeure stipulations allow contractors to claim costs when unable to perform obligations due to extraordinary events, with war explicitly identified as one of those circumstances.

Recoverable costs encompass reasonable expenditures incurred by the contractor, whether on or off-site.

However, relying on force majeure is not straightforward. It hinges on how the contract defines war and whether this definition encompasses conflicts outside of South Africa.

“Employers typically advocate for a narrower interpretation, limiting their liability,” clarified Malan.

“Contractors understandably prefer a broader interpretation that would permit recovery of costs stemming from international conflicts.

“Ultimately, whether a contractor can reclaim these costs depends on contract interpretation.

“However, if notice of a force majeure event is not issued, you cannot even make that argument.”

This is where many contractors face significant risk.

Under FIDIC, a contractor who fails to provide timely notice of a force majeure event forfeits the right to make a claim altogether.

For contractors who have yet to issue notices, each week of inaction further undermines their position. In some instances, it could entirely extinguish their claims.

MDA Attorneys is advising contractors to act promptly on three fronts: review whether their CPA formulas sufficiently cover increases in oil-related costs; determine if force majeure notices should be filed immediately; and ensure precise maintenance of cost records.

“The construction sector is already functioning on slender margins,” remarked Malan.

“Contractors cannot afford to take a wait-and-see approach.

“They need to grasp their contractual standing now, take necessary steps to safeguard their claims, and engage with employers proactively.

“The longer this issue is postponed, the more challenging it will become to recover these costs.”

MDA Attorneys is closely monitoring developments and is advising clients across the entire spectrum of standard-form contracts.

Contractors operating under NEC, JBCC, and GCC contracts encounter different contractual scenarios and should seek guidance that is specific to their respective agreements.