Review of rates on a regular and systematic basis
27 Review of rates on a regular and systematic basis
Section 31(2)(k) of the Act provides that a matter to be considered in determining whether a hirer's conduct is unconscionable is whether or not the contract allows for the payment of any increases in fixed and variable overhead costs on a regular and systematic basis. This means that a contract which locks up a forestry contractor's rates for long periods of time without regard to increases in overheads (particularly fuel prices) will be susceptible to a claim of unconscionable conduct.
Guidance
Set out below are certain practices that, while not being mandatory, constitute a review of rates for increases in overhead costs in respect of forestry contractors on a "regular and systematic basis", and which are therefore unlikely to constitute unconscionable conduct within the meaning of section 31(2)(k) of the Act.
The component of a forestry contractor's remuneration that relates to the cost of fuel is determined by direct reference to the actual cost of the fuel required to perform the services and is adjusted—
at least every 6 months; or
if there is an increase in the price of fuel of 10% (or a lesser percentage amount) since the last rate adjustment; or
if there is an increase in the cost of fuel of such an amount that it causes an increase of more than 1% (or a lesser percentage amount) of the forestry contractor's operating costs since the last rate adjustment.
In addition—
the determination of any increases or decreases in the cost of fuel is by reference to a legitimate and accurate fuel price monitoring source; and
the rates paid to the forestry contractor are reviewed regularly and systematically in respect of operating costs other than fuel.
While this clause sets out practices that are unlikely to be unconscionable, other arrangements may be commercially appropriate and legitimate in all the circumstances and comply with the requirements of section 31(2)(k) of the Act.
Example 27
Ron is a harvesting contractor and has the benefit of a 5-year contract with a guaranteed volume and a turnover of $350 000 a year. His hirer is in turn subject to a 5-year contract with a timber processor, and has the benefit of a 6‑monthly fuel review clause. Ron's rates are similarly reviewed for fuel increases under his contract every 6 months, and an additional lump sum is paid as compensation for the average increases over the previous 6‑month period. Given Ron's level of contract security and turnover, and the commercial arrangements between the hirer and the processor, a 6-month review is unlikely to be unconscionable conduct within the meaning of section 31(2)(k) of the Act.
Sch. 1 Pt 6 (Heading and cl. 28) inserted by S.R. No. 4/2021 reg. 14.
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