Rising Diesel Prices Affect Construction Contractors’ Profit Margins

Johannesburg – A significant number of construction contractors in South Africa are currently facing inadequate or nonexistent protection against the rising diesel prices, which is severely impacting the financial health of those using heavy machinery.

Amid the ongoing conflict between Israel and the United States versus Iran, the essential Strait of Hormuz remains obstructed, leading to record-high diesel prices.

MDA Attorneys, experts in construction law, have reported a notable increase in inquiries from contractors struggling with surging fuel and material costs. They caution that many contracts offer limited protection against these spikes, and the opportunity for contractors to recover additional expenses is quickly diminishing.

MDA Attorneys provide counsel on a variety of standard construction contracts and express concern that the recent rise in oil prices is likely to be addressed under FIDIC, a widely used framework in construction agreements.

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

“The cost of diesel has increased dramatically in a short time. For contractors who depend on heavy machinery, this poses a significant threat to profitability.

“Most standard contracts were not structured 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).

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

The CPA mechanism is not geared to manage abrupt, severe price hikes resulting from geopolitical conflicts.

When oil prices spike sharply over a short period, as they have since February 2026, contractors may find the CPA mechanism insufficient, leaving them to shoulder the expenses themselves.

The outlook is concerning.

The official fuel prices for May were calculated based on Brent crude averaging below $101 per barrel, but following the collapse of US-Iran peace negotiations, oil prices have risen further.

June prices are anticipated to increase even more.

Moreover, starting in June, the government’s temporary relief on fuel levies, which has been easing the burden on South African consumers and businesses, will begin to be phased out and will fully disappear by July.

As a result, contractors are contending with both escalating global prices and a rising structural price floor simultaneously.

Given the limited remedy offered by CPA clauses, some contractors are investigating force majeure provisions for possible recovery.

FIDIC’s force majeure stipulations allow contractors to claim costs when unable to fulfill obligations due to extraordinary events, explicitly naming war as one of those conditions.

Recoverable costs can include reasonable expenses incurred by the contractor, whether on-site or off-site.

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

“Employers typically favor a narrower interpretation to limit their liability,” clarified Malan.

“Contractors understandably advocate for a broader interpretation that would enable the recovery of costs arising from international conflicts.

“Ultimately, whether a contractor can recover these costs hinges on contract interpretation.

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

This is where many contractors face considerable risk.

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

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

MDA Attorneys is urging contractors to act swiftly on three fronts: review whether their CPA formulas adequately address increases in oil-related costs; determine if force majeure notices should be issued immediately; and ensure accurate maintenance of cost records.

“The construction sector is already operating on tight margins,” remarked Malan.

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

“They must understand their contractual position now, take the necessary steps to safeguard their claims, and engage with employers proactively.

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

MDA Attorneys is closely monitoring developments and advising clients across all standard-form contracts.

Contractors under NEC, JBCC, and GCC agreements face different contractual scenarios and should seek guidance tailored to their specific contracts.