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Page 1: Public Procurement Whitepaper · quality/cost weightings and towards whole-life costings will require organisations’ executive teams to trust procurement professionals’ expertise

Public Procurement WhitepaperFutureproofing Procurementin 2020 and Beyond

Sponsored by

Page 2: Public Procurement Whitepaper · quality/cost weightings and towards whole-life costings will require organisations’ executive teams to trust procurement professionals’ expertise

Contents

3FOREWORD FROM FUSION21

4INTRODUCTION & KEY LEARNING POINTS

6THIS MOMENT CORONAVIRUS

12BREXIT

14THE ZERO CARBON AGENDA

16TO THE FUTURE

8HACKITT RECOMMENDATIONS

10BUILDING RELATIONSHIPS WITH SUPPLIERS

Fusion21 has long viewed procurement as a strategic enabler, and, in partnership with our members and supply chains, we can manage the transition to the new normal, and beyond.

Andrew Gray, Member Relationship Manager at Fusion21

This whitepaper was written during the Covid-19 pandemic, when crisis management consumed us all, and we wondered how we would ever reach a “new normal”. However, the conversations Fusion21 had with its members in order to produce this report were all positive, forward-thinking, and focussed on how the crisis could be a catalyst for considering how to “Futureproof Procurement”.

Foreword from Fusion21

As we emerge from this crisis, our organisations are going to be looking to us in procurement for immediate, as well as long-term solutions. We must, therefore, be prepared, continually engaging with our contractors and suppliers, with the markets, with our peers, to ensure we have all of the information as lockdown is lifted and things begin moving again. All procurement professionals must remain in touch with what’s happening at government level, and make sure we have the flexibility to deliver.

Even before coronavirus, procurement professionals were already preparing for Brexit, responding to the Hackitt Report and contemplating how to

contribute to the UK achieving net zero carbon by 2050.

Through this period of change, procurement has a huge responsibility to support the delivery of the government’s policies and wider agendas through public spending – whether that is having a positive social impact through procurement, delivering SME targets, or helping to achieve net zero carbon by 2050.

Thinking about the coming months, right through to 30 years ahead, procurement professionals are in a stronger position than ever to start breaking free from traditional constraints and really start adding strategic value.

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At the time of publication, it feels like the world has changed; but, as expressed throughout this report, coronavirus is one of numerous external factors currently converging on public sector policy. Procurement teams must demonstrate resilience, agility and dynamism, putting policy into practice in ways that ensure their organisations are able to meet current and emerging challenges.

During lockdown, Fusion21 held a series of webinars chaired by Andrew Gray, Member Relationship Manager, on the future of public sector procurement.

During the coronavirus crisis, continuous engagement with contractors and suppliers

helps public sector organisations understand the pressures businesses are facing.

As we continue to emerge from the crisis, achieving value for money is likely to

become even more important: it will be time for procurement professionals to step

up and demonstrate their strategic importance within their organisations.

Earlier engagement with potential contractors and suppliers, ahead of tendering

processes, leads to greater ownership of eventual contracts, and greater input around

sustainable social value outcomes.

The Hackitt recommendations will lead to better quality and safer work being

delivered, with organisations avoiding a ‘race to the bottom’. A move away from

quality/cost weightings and towards whole-life costings will require organisations’

executive teams to trust procurement professionals’ expertise. Ensuring the

necessary data is available will also be key.

Post-Grenfell, procurement teams must ask difficult questions of suppliers to ensure

product quality and safety. Residents should now routinely be involved in

procurement decisions that affect their homes and environments.

Continued adoption of innovative technologies will be key to meeting zero carbon

goals. This will require greater flexibility in procurement, allowing for investment in new

technologies despite the fact they lack the track record of more established approaches.

There needs to be a greater focus on skill development and expertise across public

procurement. In order to deliver on the government’s zero carbon agenda, its

post-Brexit plans, and to help the UK economy recover after the Covid-19 pandemic,

procurement professionals need to be empowered to deliver procurement strategies

that can make a difference in the long-term.

Key learning points:

The virtual sessions – at which a series of sector experts presented their views on current events and their potential impact on procurement professionals’ working lives – replaced Fusion21’s Member Forums, which had been due to be held face-to-face at locations across the country.

This whitepaper presents the key points made during the virtual discussions, which can be listened to in-full via Fusion21’s website.

Introduction

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Furloughed employees

In the short-term – during lockdown – accessing contractors’ skills and services was sometimes proving tricky. “Staff are really busy trying to keep repairs happening,” explained Durie.

“Tenants are still receiving a good service from our key contractors who deal with urgent repairs; however, some of our contractors have furloughed their teams, because their work is deemed ‘non-essential’.  With more than 27,000 homes across Nottingham, sometimes repairs are needed. Thank goodness for the furlough scheme, but it hasn’t been easy to find alternative contractors to go out and do the work.”

Increased flexibility

Like Fusion21 itself, members had not put procurement projects on hold, but were extending tender periods. For example, Nottingham City Homes extended a development contract tender by three weeks in order to give potential bidders the leeway they needed to be able to respond.

Meanwhile, Fusion21 pushed back the deadline for its £80m National Lifts Framework as they appreciate that suppliers will have different challenges right now, but equally, didn’t want everything to stop.

In situations where procurements are urgent, it should be possible for contracting authorities to give suppliers “some slack to respond and deliver requirements”, stated Katie Saunders, a Partner at Trowers & Hamlins.

“Within procurement regulations, there is the ability to negotiate directly with suppliers, and that is in the event of extreme urgency – and the current situation is urgent,” added Saunders. “If you had a procurement need because of coronavirus, then you’d be able to negotiate with a contractor directly, and it would be covered under the extreme urgency requirement.”

At Salix Homes, Procurement Manager Emma Hyland pushed ahead with supplier engagement, tender processes and contract awards as planned, but had extended the timeframes, “giving more time for businesses that are experiencing resource impacts to respond”, she explained. “Just because organisations are working remotely doesn’t mean we cannot ensure value for money.”

Careful contract management meant that Salix could take a variety of different approaches, said Hyland, these included the ability to run mini competitions, based on fair competition; modifying contracts’ value, term and services within certain parameters; and awarding contracts to incumbents for six months, 12 months or for the full-term, or on a month-by-month rolling basis.

Some time and space

Lockdown had the unanticipated effect of speeding up decision-making around procurements that were previously stuck in the pipeline, making it possible to work on longer-term plans.

“Procurement is one of those disciplines that can be undertaken on a remote working basis,” said Rebecca Rees, also a Partner at Trowers & Hamlins, “so I think most of my clients are busier now that their internal clients have space to make decisions.”

“The lull is allowing the category managers to use time they wouldn’t normally have to think about their plans for the next financial year,” agreed Metropolitan Thames Valley’s Wallace.

“I think, in the medium-to-long-term, coronavirus is going to lead to a greater need for procurement,” he added. “Procurement will come to the fore as a result of this unfortunate situation, with businesses looking to cut costs, to make sure they’re in a very sound financial position when things start moving again.”

This whitepaper was produced in the midst of an unprecedented time, but the risks causing Fusion21 members most concern were the same as before the pandemic hit – albeit amplified.

THIS MOMENTCORONAVIRUS

During lockdown, procurement teams were enjoying direct access to decision-makers within their organisations, who were spending more time on strategic planning, in preparation for when we would reach the other side of the pandemic. With executive teams firmly in listening mode, there was an opportunity for procurement professionals to help shape the ‘new normal’.

Concerns around supplier failure

As they worked from home, public procurement professionals wondered how suppliers, particularly SMEs, would be able to make it through the crisis – what could they do to help mitigate risks?

The government wanted to see greater collaboration between the landlords and the suppliers, and procurement professionals were at the forefront of making this happen.

In March 2020, the Cabinet Office had issued action notes, including PPN 02/20, asking for public bodies to, “urgently review their contract portfolio and inform suppliers who they believe are at risk that they will continue to be paid as normal (even if service delivery is disrupted or temporarily suspended) until at least the end of June”.

Fusion21’s members were doing what the government asked: “We’re reiterating what the government has said – we’ve always paid quickly anyway,” said Katie Durie, Sourcing Manager at Nottingham City Homes, “but are our suppliers getting paid by their other customers, and where does that leave them in future?”

Through its supplier engagement work, Fusion21 knows that close communication with suppliers is the only way forward. Salix Homes’ Procurement Manager Emma Hyland explained how her organisation had conducted a review of key contractors at the start of lockdown in order to establish a clear position on risk for the business.

The Salford-based organisation went on to put in place the most appropriate payment measures to support supplier cash flow, these included forward ordering, payment in advance, interim payments and payment on order.

“On a day-to-day basis, it’s very much all hands to the pump,” stated John Wallace, Procurement Director at Metropolitan Thames Valley. “We’ve been in touch with all of our suppliers to understand where they are at, we then collate that information and circulate it to our senior leadership team for onward cascading.“

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detail and eliminate subjectivity by focussing on achieving the right cost structures for works and services.

Meanwhile, Salix Homes has introduced a procurement sourcing document (PSD) which means that decisions about individual procurements over the value of £25k are broken down into three stages – pre-commercial; drafting and review of tender documents; and evaluation, award and mobilisation. Procurement Manager Emma Hyland explained how this meant the team needed to justify their decisions at each stage.

Adopting whole-life costing

Rees questioned whether the public sector had the data needed in order to adopt the whole-life approach to procurement, recommended by Hackitt.

“Although the procurement rules have allowed us to evaluate on that basis for several years now, we don’t have the tools available to us to be able to do that on a widespread basis,” she stated.

However, Metropolitan Thames Valley’s Wallace said that procurement teams had to start somewhere – and begin incorporating a whole-life approach into their activities. “While the data we need is being collated and improved, we have to try to find a path through it,” he stated.

Resident involvement

Greater resident involvement in procurement at a strategic level should be a long-lasting outcome from the Hackitt Report. “If you’re following the guidance, you really do need to involve residents when undertaking work on their properties,” stated Saunders. “Even services such as financial and IT services arguably have a direct impact on residents.”

Salix Homes’ Customer Committee gets involved in procurement whenever it is “relevant and proportionate”; for example, it includes tenants in decisions around selecting new kitchen packs under its investment programme procurement, she said.

Fusion21’s Verburg suggested procurement teams could, “ask residents for ideas of innovative methods of delivering work or the types of technologies that perhaps could be used in properties”. “It could ultimately improve quality of life for them, as well as delivering the aims of the landlord,” he said.

As Trowers & Hamlins’ Katie Saunders explained, the Ministry of Housing, Communities and Local Government’s consultation document on its Building a Safer Future reforms, published in July 2019, did not incorporate as many of Dame Judith Hackitt’s recommendations as generally expected.

Hackitt recommendations

However, Saunders believes this is due to the government’s belief that, “procurement needs to be changed in response to guidance rather than legislation”.

Legislation or no legislation, the Grenfell Tower tragedy and Hackitt’s Independent Review of Building Regulations and Fire Safety, published in May 2018, has changed things.

“We cannot now go out to the market on public sector projects without checking that the contractors and suppliers and service providers are building safely and with a quality agenda,” Saunders stated. “It will be almost negligent to not ask questions about the quality of the products that the supply chain is providing, about where products are coming from, and safety processes on and off-site.”

“The challenge for procurement teams is to persuade their businesses that procurement is not about price, it’s about value for money and everything that goes into that,” said John Wallace, Procurement Director at Metropolitan Thames Valley. Hackitt’s recommendations provide procurement professionals with an opportunity to take a “more leveraged approach within the rest of the organisation”, he said.

Boycotting the race to the bottom

Given the huge challenges organisations are currently facing, the need for agility and adaptability is greater than ever before. In procurement, this means rethinking how things have always been done.

For a start, the use of weightings needs to be reconsidered, suggested Rebecca Rees, Partner at Trowers & Hamlins. “As a sector we need to move away from weightings and look at methodologies that sit beneath them, to make sure we understand the impact of that tension between quality and price,” she explained.

Avoiding a ‘race to the bottom’ in procurement, is not as simple as price/quality splits in favour of quality, the experts agreed. This is because, whatever weighting organisations decide upon, price tends to skew outcomes, and this still ends up being the determining factor.

“It’s about the way in which commercial models are structured in order to consider whole life costs, and also how they are evaluated to ensure those costs are sustainable,” said Nick Verburg, Procurement and Supply Chain Manager at Fusion21.

Fusion21 had been working on achieving more evidence-based processes during procurement exercises. Competitions can favour those who write the largest essay responses, we’re trying to strip back some of the

“If costs aren’t sustainable until the very end of the contract, there tends to be two outcomes: firstly, not all the work is done properly; and

secondly, costs are likely to be recovered somewhere else during that contract delivery.”

Procurement and Supply Chain Manager, Fusion21Nick Verburg

8 9

Building a Safer Future

May 2018

Dame Judith Hackitt DBE FREng Cm 9607

Independent Review of Building Regulations and Fire Safety:Final Report

April 2020 Ministry of Housing, Communities and Local Government

A reformed building safety regulatory system Government response to the ‘Building a Safer Future’ consultation

PUBLIC PROCUREMENT WHITEPAPER FUTUREPROOFING PROCUREMENT IN 2020 AND BEYOND

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It’s about engaging with bidders to understand their cost models and trying to get some evidence about where costs become sustainable, and where they’ve delivered those elsewhere; it’s also about identifying pinch-points and looking at how improvements can be implemented.

Katie Durie, Sourcing Manager at Nottingham City Homes, said she recommends responsible officers within

her organisation have regular meetings with their suppliers. “You can learn a lot from meeting people, spot opportunities for potential cost reduction, pick up on invoice queries and address problems,” she explained.

At Metropolitan Thames Valley, the procurement team is taking its work to another level. It is currently assessing all of its suppliers to create relationship scenarios for different levels of importance, which involves assessing things like their potential impact on the customer, and any regulatory or legal issues that may come up during the course of a contract.

“We can then create groups of suppliers and consider the types of contract management and behavioural management we want to see in place,” explained John Wallace, its Procurement Director.

Meanwhile, Salix Homes sets key performance indicators in partnership with its suppliers ahead of contracts beginning. “KPIs can be built mutually,” said Emma Hyland, Procurement Manager at Salix Homes. “They can be relative, proportionate, not too complex, and therefore easy to monitor.”

Levelling the playing field

We have to avoid a procurement competition that favours large organisations with teams of bid writers – we need to level the playing field for SMEs. Fusion21, for example, has stripped out some of the detail from its procurement processes to reduce the burden on suppliers; because, ultimately, the greater level of competition, the greater opportunity there is to deliver good-quality services through contracts.

Many forget that it is possible to set aside certain lots within an overall procurement for SMEs if you declare that it is the approach you are taking from the outset, reminded Saunders. These lots can have slightly different thresholds; for example, they perhaps do not have minimum turnover requirements, making them more accessible for smaller businesses.

A flexible approach to social value

When working with SMEs it is also important to be open to discussions around social value. Achieving social value does not have to be about providing a certain number of apprenticeships in relation to contract spend – instead, procurement professionals and suppliers can discuss what is possible.

“Regulations make it crystal clear that you can take into account social value, and there can be flexibility when contractors and clients are willing to have an ongoing conversation about community investment and impact,” assured Rebecca Rees, Partner at Trowers & Hamlins.

One thing Hackitt clearly recommended was early engagement with the supply chain. There is already scope within procurement regulations to engage with soft market testing “to get a feel for the right price before you can go out to the market,” explained Katie Saunders, Partner at Trowers & Hamlins.

Building relationships with suppliers

However, this approach takes time, and often involves “executive and senior management teams understanding that they shouldn’t expect their procurement colleagues to go out to the supply chain at the drop of a hat,” Saunders stated.

Early engagement

In order to make sure the 400-plus suppliers across its procurement frameworks are the best in their markets, Fusion21 engages with them from the outset. This enables Fusion21 to help shape the procurement strategy for the framework and get a sense of ownership.

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Before Coronavirus, it was Brexit that concerned us all. In public procurement, fears around what would happen to the labour markets for construction and property services, and also around the supply of materials, were most pressing.

“At the moment, it has been put on the back burner,” summed up John Wallace, Procurement Director at Metropolitan Thames Valley, “but it will come to the fore when things settle down.”

Brexit and the regs

Emma Hyland, Procurement Manager at Salix Homes, pointed out that, following a no-deal Brexit, the Office Journal of the European Union (OJEU) would be replaced by a Find a Tender Service (FTS), the UK e-notification service, advertising public contracts over certain thresholds.

Regulations would then be “amended and replaced quite quickly”, following the completion of the withdrawal agreement at the end of this year, explained Rebecca Rees, Partner at Trowers & Hamlins. “The direction of travel is going to be towards less regulation and more soft law or guidance,” she stated.

BrexitFellow Trowers & Hamlins Partner Katie Saunders added that the government will likely focus on achieving greater flexibility and better innovation through procurement, as well as getting more SMEs involved. She anticipated more training, and guidance and policy, and best practice, “coming out of the Cabinet Office to upskill people in procurement”.

Whatever happens, at Fusion21, there will still need to be competition and transparency around how organisations spend public money. The treaty principles that currently underpin public procurement will still apply.

All future procurement rules will need to be underpinned by World Trade Organisation’s Agreement on Government Procurement (WTO GPA), agreed Rees.

Introduction of tribunals

Rees predicted the government would explore the introduction of a procurement tribunal, specifically for procurement-based disputes. “It would be cheaper and quicker than going to the High Courts each time a contractor wants to challenge, which is inevitably going to mean more challenges, but should be dealt with more quickly and easily,” she explained.

Verburg reacted to this suggestion, by saying: “There should be a process to challenge [procurement-related decisions], but I would be concerned about how it could impact organisations’ appetites to be more commercially savvy and to take calculated risks.”

Supply chain management

The experts agreed that, following the end of the UK’s withdrawal agreement from the EU, the government would place more emphasis on supply chain management, and understanding how skills, labour supply and fluctuating costs impact the economy – a real opportunity in procurement to have influence and really demonstrate its worth.

“The Cabinet Office are really keen to see procurement as an enabler,” responded Rees. “So, I think their overall thrust is to make sure people use procurement in a flexible, result-orientated, solution-orientated manner. Value for money will be the aim of the resulting procurement regime,” she stated.

This could be a culture shift for organisations, suggested Wallace.

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“A lot of exec teams still see procurement as a compliance function,” he said. “There is a great opportunity for us to respond to the value for money and create

a different environment.”

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2050 seems like a long way away, but our opportunity is to start supporting the delivery of the agenda. However, to do so effectively, procurement professionals need more insight into government-level thinking so they can start planning ahead.

Fusion21 frameworks tend to be for four years – but it’s not about us saying, “Not to worry, because there are another eight generations of frameworks before we get there”. Instead, there will be a step change in how we continue to approach zero carbon.

Fusion21’s new Heating Renewables Framework is a case in point. They created a bespoke supply chain to deliver renewable-only works, allowing the delivery of those renewable technologies alongside some of the more traditional heating systems. It was quite evident that there were two separate supply chains, and Fusion21 now have flexibility to be able to deliver both options to their members.

Salix Homes and other organisations are working on their green corporate strategies, with net zero being the end goal. “Part of my role is to create a business-wide approach to limiting our carbon footprint and create a corporate strategy that delivers on national and regional policy,” said Procurement Manager Emma Hyland. “Part of this will be working with different parts of the business to ensure they understand their own responsibilities towards our carbon footprint.”

A leap of faith

As with the move towards whole-life costing recommended within the Hackitt report (see pages 6-7), investing in zero carbon options currently involves taking a leap of faith. This is because it is not always possible to understand how upfront costs compare to cost savings and other benefits over the longer-term.

“Again, the data is the missing link,” stated Katie Saunders, Partner at Trowers & Hamlins. “This is why we’re struggling to get through the barrier of innovation, with the public sector reverting to more traditional options because they cannot take the risk on new products and technologies, which have not been backed up by years of research that confirms they deliver what they say they deliver.”

However, in order to help meet the UK’s net zero carbon target, “I think we’ve got to go there, and take a risk on some of the technologies and products coming forward, in order to prove they do provide a better energy-efficient solution,” suggested Saunders.

Reviewing pricing practices

One of the reasons innovative options are not being pursued as widely as they could be, is the way in which organisations procure on the basis of capital expenditure. “Because a lot of the net zero products are emerging technologies, and subject to research and development, they are more expensive – therefore, doing a ‘lowest-price-equals-highest-marks’ procurement causes problems,” said Rebecca Rees, also a Partner at Trowers & Hamlins.

“I think we’ve got to look at our pricing practices and this is where whole-life costing would come into its own,” she suggested. “Also, we should anticipate migrating the contract to net zero solutions and include specific review procedures in tender documents in order to make sure we can incorporate emerging technologies.”

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Public interest in the climate change disaster has risen over the last 18 months, and this seems to have had a big impact on executive teams and boards.

The

Zero

Car

bon

Age

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Around five years ago, the housing sector’s sustainability agenda pretty much disappeared, explained Samantha Grainger, Senior Environmental Manager at Thirteen Group. “Due to cuts, there was less emphasis on that area of work,” she explained, “but around this time last year, zero carbon had made its way back to the top of the sector’s agenda.”

Local authority partners’ emphasis on sustainability has further driven this commitment to reducing organisations’ carbon footprint. “We’ve already seen a change in what’s been expected from the planners,” said Grainger. “In Hartlepool, for example, we’re being asked for 10% energy generation on-site.”

Preparing for 2050

In June 2019, the UK passed laws to end its contribution to global warming by 2050, with the target being to bring all greenhouse gas emissions to net zero by this date.

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Amidst so much general uncertainty, there is much for procurement professionals to be optimistic about, and job security is one of them.

To the future

“We have all these government agendas coming into the sector,” summed up Rebecca Rees, Partner at Trowers & Hamlins, “Decent Homes 2, net zero carbon, the Hackitt recommendations – and procurement specialists are going to be at the frontline, ensuring organisations achieve value for money, and the products and services they secure are fit for purpose.”

The experts suggested that there is likely to be a trend towards upskilling within public sector procurement teams, as part of a more general drive towards the professionalisation of the procurement industry.

“I think that procurement is the most exciting profession to be in,” stated John Wallace, Procurement Director at Metropolitan Thames Valley. “We’ve got huge benchmarking opportunities with other sectors to see how they do it, so the learning opportunity is never-ending.”

Working in procurement allows you to “impact the whole business”, added Wallace, “and in terms of stakeholder engagement, we’re across the whole piece. We can make customers’ lives better.”

As we work to put Hackitt’s recommendations into action, gaining residents’ input at a strategic level will become increasingly important. Residents’ input into asset strategies will be key to ensuring those plans reflect their needs.

In this whitepaper, the experts have referred to the need for organisations to take a “leap of faith” in terms of adopting whole-life costings and procuring innovative products and technologies. Doing so will shift perceptions around procurement – no longer a team simply necessary for compliance and saving the pennies, it will be a truly valued strategic function.

Leaps of faith require a starting point to jump from, which is why involving residents is such a logical next step. Look out for further research that is currently being conducted by Fusion21 in partnership with tenant engagement experts Tpas, due to be published in September 2020.

And finally... Fusion21’s recommendations for futureproofing procurement, based upon what we have learned through this whitepaper:

• Covid-19 is, of course, the immediate concern for all of us, but don’t forget about Brexit and Hackitt’s findings when considering the future of procurement

• Collaboration, early market engagement and strategic thinking are key to future proofing procurement • Residents voices are crucial – ensure you listen to them

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As well as reacting to threats posed by the many external challenges we are all facing, also consider the opportunities we are being presented – adapt, innovate and demonstrate the value of strategic procurement, not least in terms of the value for money that can be achieved by forward-thinking procurement teams.

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@fusion21SocEnt

[email protected]

0845 308 2321

fusion21.co.uk

Fusion21 helps people buy smarter in the public sector and make a difference in communities across the UK. We’ve saved our members more than £226m with fully compliance procurement frameworks’ ‘while the social value of our projects currently stands at £84m.Talk to us about making a real impact.

Katie Durie, Sourcing Manager, Nottingham City HomesEmma Hyland, Procurement Manager, Salix HomesKatie Saunders, Partner at Trowers and HamlinsJohn Wallace, Procurement Director, Metropolitan Thames ValleyRebecca Rees, Partner, Trowers and HamlinsNick Verburg, Procurement and Supply Chain Manager, Fusion21

Thank you to the panelists

MAKE A IMPACTrealreal

Fusion21

Fusion21