Road Transport Contractual Chain Order – fuel cost recovery and council contract risk

On 20 April 2026, the Fair Work Commission (Commission) made Australia’s first Road Transport Contractual Chain Order (RTCCO) under the new road transport contractual chain regime in Chapter 3B of the Fair Work Act 2009 (Cth) (FWA). The RTCCO took effect on 21 April 2026.

The RTCCO allows participants in affected road transport contractual chains to adjust rates so increased fuel costs can be recovered and passed up the chain, with the cost burden ultimately being borne by the end user of road transport services. 

Local councils commonly engage contractors, suppliers and service providers whose activities involve road transport, either directly (such as waste collection) or indirectly through subcontracting and supply chain arrangements. As a result, councils and many of their contracts and arrangements will fall within scope of the RTCCO.

In this article, we examine the RTCCO in a local government context. Practical examples and key takeaways are included to assist councils in understanding their obligations under the RTCCO and managing compliance risk.

What is the Road Transport Contractual Chain Order?

The RTCCO is a legally enforceable instrument. It was made following an emergency application under the Fair Work Amendment (Fairer Fuel) Act 2026 (Cth) which passed on 2 April 2026.

The RTCCO applies nationally and has no fixed end date. It will automatically cease to operate if the weekly average national terminal gate price for diesel (as reported by the Australian Institute of Petroleum) falls below $2.00 per litre.

The RTCCO is subject to review by the Commission after its first month of operation and every three months thereafter.

Why was the RTCCO introduced?

The RTCCO was introduced in response to unprecedented fuel price increases caused by disruptions to global shipping routes and ongoing conflict in the Middle East, particularly affecting transit through the Strait of Hormuz.

Between 27 February 2026 (the day before hostilities started) to 27 March 2026, diesel rose from 165.4 to 310.6 cents per litre and petrol from 156.2 to 246.9 cents per litre.

Evidence before the Commission demonstrated that these increases were disproportionately affecting small operators within the road transport industry, namely self-employed workers (owner-drivers and road transport employee-like workers) and small businesses (small fleet operators).

The Commission found that the road transport industry operates through contractual chains in which smaller parties at or towards the end of the chain often lack the bargaining power and contractual flexibility to renegotiate rates when fuel prices rise sharply.

The Commission accepted that, without regulatory intervention, smaller operators would be forced to absorb fuel cost increases, threatening their viability and potentially harming the national economy and the public interest.

The RTCCO is intended to:

• ensure fuel cost increases can be recovered at each level of a road transport contractual chain;

• prevent cost pressures being unfairly concentrated on vulnerable participants;

• promote transparency and accountability within road transport supply chains; and

• ensure that the ultimate cost of fuel price rises is borne by the end user of road transport services.

Scope of the RTCCO

Understanding what constitutes a ‘road transport contractual chain’ is critical.

Under section 15RA of the FWA, a road transport contractual chain is defined as a chain or series of contracts or arrangements:

• under which work is performed for a party to the first contract or arrangement by a regulated road transport contractor, a road transport employee-like worker, or an employee; and

• in which at least one party to the first contract or arrangement is a constitutional corporation.

A person is ‘in’ a road transport contractual chain if they are:

• a primary party (eg. council and head contractor) to the first contract or arrangement;

• a secondary party (eg. subcontractors/suppliers involved later in the chain for transport) to a subsequent contract or arrangement in the chain; or

• a regulated road transport contractor or road transport employee‑like worker (eg. owner-drivers / employee-like workers / small fleet operators) performing work under the chain.

The concept of a road transport contractual chain is intentionally broad. It is not limited to freight or logistics companies. For example, it can capture:

• purchasers of goods or services;

• suppliers who subcontract delivery activities;

• contractors whose work includes transporting goods or materials as part of a broader service; and

• councils and other public sector bodies who sit at the head of contractual arrangements.

The definition of ‘road transport industry’ is also broad and includes:

• the road transport and distribution industry;

• long distance private road transport;

• waste management; and

• passenger vehicle transportation (excluding rail-based services).

This wide scope means many arrangements that do not look, at first glance, like ‘road transport contracts', may still fall within the road transport contractual chain.

Employee carve-out – a critical qualification

An important consideration is the employee carve out in section 15RA(3) of the FWA. This provides that individuals performing work in the capacity of an employee are not ‘in’ a road transport contractual chain for the purposes of the FWA.

Practically, this can break the chain where:

• a supplier of goods or services, for example a plumber, delivers equipment or materials to site using its own employees; and

• there is no separate engagement of a regulated road transport contractor or employee-like worker in delivering the equipment or materials.

In those circumstances, the fact that goods are transported to a council site does not, in itself, create a road transport contractual chain.

Obligations imposed by the RTCCO

The RTCCO imposes different obligations depending on a party’s position in the road transport contractual chain.

Primary parties

Primary parties must:

• adjust the rate they pay to other primary parties to ensure recovery of increased fuel costs compared with prices on or before 6 March 2026; and

• take reasonable steps to ensure that secondary parties further down the chain similarly adjust their rates so that increased fuel costs are recovered.

Secondary parties

Secondary parties must adjust the rate they pay to their counterparties (including regulated contractors and employee‑like workers) to ensure recovery of increased fuel costs.

Timing and methods

Rate adjustments must occur at least:

• fortnightly; or

• twice per calendar month.

The obligations can be satisfied in various ways, including:

• adjusting overall rates or rate components;

• introducing a fuel levy or surcharge;

• direct reimbursement of fuel costs; or

• application of an existing ‘rise and fall’ formula or benchmarking model.

The Commission has made clear that compliance is not an exercise in perfection but must have a sound and reasonable mathematical basis of what is necessary to provide for cost recovery.

Penalties for non-compliance

Compliance with the RTCCO is mandatory. Failing to comply with or contravening a term of the RTCCO is a contravention of the FWA and can attract significant civil penalties as well as compensation orders.

The maximum penalty that can be imposed for each contravention is currently $19,800 for an individual and $99,000 for a corporation, and the Court also has power to order compensation and other usual remedies for contraventions of the FWA.

How does the RTCCO apply to local councils?

Local councils frequently sit at or near the head of contractual chains. Common examples include:

• waste collection and waste management contracts;

• civil works and infrastructure maintenance;

• construction and capital works projects;

• parks, roads and fleet services; and

• procurement of goods where delivery is subcontracted.

While councils are not constitutional corporations themselves, the RTCCO will often still apply because at least one other primary party (generally the contractor or supplier) will be a constitutional corporation.

Waste contracts

Waste collection contracts are particularly likely to be caught, as waste management is expressly included in the definition of the road transport industry. Councils should assume these contracts are within scope unless clearly carved out.

Civil and maintenance contracts

Contracts for civil works, road maintenance, plumbing or similar services may fall within a chain where:

• transport of materials or equipment is subcontracted; and

• road transport work is more than merely incidental and is performed by regulated contractors.

Standard supply contracts

Supply contracts require careful analysis. The key distinction is:

• delivery by supplier’s employees – typically outside the RTCCO due to the employee carve out; versus

• delivery by third‑party couriers or transport providers – likely to create a road transport contractual chain.

Example scenarios

The examples below illustrate how the RTCCO operates in practice:

Scenario 1: Waste collection contract	Outcome
A local council engages WasteCo Pty Ltd to provide residential waste collection services. WasteCo subcontracts owner drivers for collection routes. The contract is for work in the road transport industry. Council and WasteCo are primary parties. Owner drivers engaged by WasteCo are regulated road transport contractors.	The RTCCO applies. Council must adjust rates and take reasonable steps to ensure WasteCo has taken measures to reimburse owner drivers for fuel cost increases.

 

Scenario 2: Direct supply with employee delivery	Outcome
A council purchases concrete pipes from Supplier Ltd. Supplier Ltd delivers the pipes using its own employees and trucks. No separate delivery fee is charged. Transport work is performed by employees only.	The RTCCO does not apply due to the employee carve out. No road transport contractual chain is created.

 

Scenario 3: Supply with subcontracted delivery	Outcome
A council purchases road signage from Supplier Ltd. Supplier Ltd engages CourierCo to deliver the goods. Council and Supplier Ltd are primary parties. CourierCo is a regulated road transport contractor. Supplier Ltd becomes a secondary party in respect of transport.	The RTCCO applies. Council must adjust rates payable to Supplier Ltd (where fuel costs are relevant) and take reasonable steps to ensure Supplier Ltd adjusts rates payable to CourierCo.

 

Scenario 4: The employee carve out in a broader context	Outcome
A council engages a landscaping contractor. The contractor transports plants and materials using its own employees but occasionally uses a third‑party haulage company for bulk deliveries.	The RTCCO applies only to the part of the arrangement involving the subcontracted haulage. Council may need to trace and isolate the transport component of the contractual chain.

 

Council RTCCO compliance checklist

The obligation on primary parties to take ‘reasonable steps’ is context specific. The Commission has indicated it does not extend to taking every conceivable step.

Instead, the Commission suggested that this would involve ‘inquiries to be made and assurance received about how rates have been adjusted to allow for cost recovery’.

For councils, reasonable steps may include:

• notifying contractors of the RTCCO and their obligations;

• requesting confirmation of compliance;

• seeking high level information about subcontracting arrangements; and

• following up where no response is received.

Key takeaways

• Assume exposure first, then narrow – given the breadth of the RTCCO, assume contracts may be captured and then carefully assess carve‑outs. Identifying impacted contracts early is key.

• Send correspondence to counterparties of impacted contracts – notify counterparties to inform them of the RTCCO and enquire whether they are complying with it.

• Pay close attention to subcontracting – downstream delivery and transport arrangements are critical.

• Use existing adjustment mechanisms where possible – fuel surcharge schemes and rise‑and‑fall clauses may already satisfy the RTCCO.

• Note the employee carve‑out and other RTCCO carve outs – the employee carve out will exclude many standard supply arrangements from the RTCCO.

• Document reasonable steps – maintaining records of enquiries and clear communications will be essential.

If your council engages contractors who subcontract transport (including waste, civil works or deliveries), contact us to discuss what the RTCCO means for your contracts and pricing mechanisms.

Author: Jason Sprague

Read other Council Connect articles from this issue

 

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.