When Does an “Unforeseen Event” Stop Being Unforeseen?

This Monday, when the Government released modelling suggesting diesel prices in New Zealand could potentially reach $5 per litre during a severe supply disruption, I was not actually surprised.

What surprised me more was the thought that came immediately afterwards:

If I could already see this coming… can we still call it an “unforeseen event”?

That question stayed with me all week.

Treasury modelling released alongside the Government’s updated fuel resilience framework suggested diesel prices could exceed $5 per litre under a major supply crisis. At the same time, the Government confirmed a deal with Z Energy to secure close to 90 million litres of additional diesel storage, which is roughly equivalent to nine days of national supply, while also investing further into fuel resilience measures at Marsden Point.

Officials openly acknowledged that diesel represents New Zealand’s greater vulnerability because demand is significantly less flexible than petrol demand. Food supply, freight, infrastructure, commercial transport, and heavy industry account for the overwhelming majority of diesel consumption.

In other words, this was not just a fuel announcement.

It was a warning about economic vulnerability.

And for construction, it was a warning we should probably pay close attention to.

Because diesel sits underneath almost everything we do:

Earthworks, civil infrastructure, freight, heavy machinery, concrete delivery, waste removal, temporary power generation, material transport, even projects that appear relatively “light” on fuel still rely heavily on diesel somewhere within their supply chain. Once diesel moves sharply, construction costs move with it.

But what interested me most was not the economics. It was the contractual implications.

Because construction contracts have long relied on the language of unforeseeable events. Contractors regularly seek relief for things described as unexpected, abnormal, exceptional, unforeseeable, or beyond reasonable contemplation at tender stage.

Historically, that argument made sense.

But the commercial environment has changed dramatically over the past few years.

We have now lived through repeated cycles of:

* fuel instability,

* material escalation,

* supply-chain disruption,

* labour shortages,

* freight uncertainty,

* severe flooding,

* cyclone damage,

* and geopolitical tension

The warning signs are no longer hidden.

Governments are publicly modelling disruption scenarios. Climate scientists have spent years discussing increasing weather intensity. The market itself has already demonstrated how fragile global supply chains can become under stress.

So at what point does a recurring risk stop being unforeseeable?

If diesel eventually reaches $5 per litre after years of public discussion about fuel vulnerability, could a principal argue that contractors should reasonably have contemplated escalation risk during tendering?

I suspect many would.

And perhaps even more uncomfortably, they may not be entirely wrong.

The same discussion applies to severe weather. Climate change is no longer a distant theoretical issue sitting inside environmental reports. It is increasingly becoming a live commercial issue sitting inside construction programmes, procurement strategies, insurance discussions, and contract disputes.

We already know many parts of New Zealand are becoming wetter. We already know extreme rainfall events are increasing in frequency and severity. We already know weather disruptions are becoming more common across infrastructure and vertical construction projects.

Yet many projects are still priced using assumptions developed during much more stable operating conditions.

So if a contractor prices an aggressive winter programme with very limited wet-weather contingency, and severe rain delays the works, can that still genuinely be called unforeseeable? Or was the risk already visible?

That is the uncomfortable shift I think our industry is slowly moving toward.

This is not about saying contractors should absorb unlimited risk. Contractors cannot control fuel markets, climate systems, international shipping routes, or geopolitical instability. Nor should principals simply transfer every external risk downstream and expect the market to absorb it indefinitely. But it does mean we may need to become far more honest about risk during procurement.

Because many disputes are no longer arising from completely unimaginable events. They are arising from known risks that were poorly allocated, insufficiently priced, overly optimistic, or simply ignored during tender stage because competitive pressure rewarded low pricing over resilient pricing.

There is an important difference between:

something nobody could reasonably predict,

and

something everybody hoped would not happen.

I think that distinction will become increasingly important in future construction disputes. Because once margins disappear, the legal arguments begin.

The contractor may say:

“This was beyond our control.”

The principal may respond:

“Yes — but it was not beyond your awareness.”

And that changes the conversation entirely. Perhaps that is the real lesson behind the Government’s “$5 diesel” modelling.

The issue is not simply fuel. The issue is whether the construction industry is still pricing projects based on yesterday’s assumptions while operating inside tomorrow’s risk environment.

And perhaps the companies that perform best over the next decade will not simply be the cheapest. They may be the ones who understand uncertainty best.

Because resilience is no longer a luxury in construction. It is becoming part of professional competence.

So What Should We Do Differently?

The answer is not to panic, and it is certainly not to price every project as if the worst-case scenario will happen tomorrow. That would make construction unaffordable and commercially unworkable.

But it does mean we need to stop treating risk review as a box-ticking exercise.

At tender stage, contractors should start recording their assumptions more clearly. If the price is based on current diesel rates, current supplier quotes, current freight rates, or normal weather allowances, say so. Do not leave important pricing assumptions sitting only in someone’s spreadsheet or estimator’s head. Put them into the tender qualifications, exclusions, or clarifications where appropriate.

Principals and consultants also need to think carefully about the procurement model they choose. If the project is exposed to high fuel use, long delivery periods, significant imported materials, or weather-sensitive works, then a pure fixed-price approach may not always deliver the best outcome. It may appear cheaper at tender stage, but if the risk allocation is unrealistic, the project may simply pay for it later through claims, disputes, delays, or contractor failure.

For contractors, this is also the time to review escalation clauses properly before signing. Does the contract allow any recovery for fuel increases, material escalation, or supply-chain disruption? Are fluctuation clauses included or deleted? Are provisional sums or cost adjustment mechanisms available? Are there notice requirements that must be triggered quickly? These questions should be asked before the contract is signed, not after the first major cost shock arrives.

Programme risk also needs to be treated more seriously. If the works are being carried out through winter, in a high-rainfall region, or in a location exposed to flooding, slips, access constraints, or remote logistics, the programme should reflect that reality. A programme that only works in perfect conditions is not a construction programme. It is a wish list.

Subcontractor and supplier terms should also be checked carefully. There is little value in negotiating protection upstream if all the same risks are accepted downstream without control. Contractors need to understand whether supplier quotes are fixed, how long they are valid for, whether fuel surcharges can be added, and whether subcontractors have included escalation qualifications of their own.

Most importantly, both parties should have the difficult conversation early.

If diesel volatility is a genuine risk, talk about it. If weather risk is obvious, talk about it. If the programme is aggressive, talk about it. If the contract pushes all uncertainty onto one party, talk about whether that is actually sustainable.

Good contracting is not about pretending uncertainty does not exist. It is about deciding, clearly and fairly, who carries which risk, how that risk is priced, and what happens if the risk becomes real.

That is where the industry needs to mature.

Because resilience is not only built through bigger contingencies or stronger balance sheets. It is built through better conversations, better records, better procurement decisions, and better contracts.

The cheapest tender may win the job. But the best-prepared contractor is more likely to survive it.