Direct Contracting

What is Direct Contracting?

DIRECT CONTRACTING or SINGLE SOURCE PROCUREMENT is a method of procurement of Goods that does not require elaborate
bidding documents. The supplier is simply asked to submit a price quotation or a pro-forma invoice together with the conditions of sale. The
offer may be accepted immediately or after some negotiations. (IRR-A Section 50)

When shall Direct Contracting be allowed?

Direct Contracting may be resorted to by a Procuring Entity under any of the following conditions:

1. Procurement of items of proprietary nature which can be obtained only from the proprietary source, i.e., when patents, trade secrets
and copyrights prohibit others from manufacturing the same item.

This is applicable when the goods or services being procured are covered by a patent, trade secret or copyright duly acquired under
the law. Under the Intellectual Property Code of the Philippines (R.A. No. 8293), the registered owner of a patent, a copyright or any
other form of intellectual property has exclusive rights over the product, design or process covered by such patent, copyright or
registration. Such exclusive right includes the right to use, manufacture, sell, or otherwise to derive economic benefit from the item,
design or process.

2. When the procurement of critical plant components from a specific manufacturer, supplier or distributor is a condition precedent to hold
a contractor to guarantee its project performance in accordance with the provisions of its contract.

This is applicable when there is a contract for an infrastructure project consisting of the construction/repair/renovation of a plant, and
critical components of such plant are prescribed by the contractor for it to guarantee its contract performance. For example, in the
construction of a power generation plant, the contractor may require the use of certain components manufactured by a specific
manufacturer, whose products have been found to meet certain standards and are compatible with the technology used by the
contractor. In this instance, Direct Contracting may be resorted to in the procurement of such critical plant components. However, the
BAC must require technical proof that such critical plant components are the ONLY products compatible with the plant.

3. Those sold by an exclusive dealer or manufacturer that does not have sub-dealers selling at lower prices and for which no suitable
substitute can be obtained at more advantageous terms to the Government. Exclusive dealership does not per se give rise to the use of
direct contracting as an alternative mode. The supplier/contractor/ manufacturer must prove through proper documentation that it is the
sole source of the said the goods, equipment, or services required.

This condition anticipates a situation where the goods are sold by an exclusive dealer or distributor, or directly sold by the
manufacturer. In this instance, it is highly unlikely that sub-dealers can sell the same at lower prices. Further, the Procuring Entity has
not identified a suitable substitute for the product that can be procured at terms more advantageous to the government.

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