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The Political Economy of the Munitions Supply Program

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Technical Report

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The Munitions Supply Program MSP is a long-term procurement program that sustains a domestic munitions industrial base that consists of a group of government-franchised monopolies contracted by Public Works and Government Services Canada PWGSC on behalf of the Department of National Defence. This report first provides an overview of the evolution of the program from its beginnings in the late 1970s to where it stands today. Further, in order to establish a perspective on modern MSP policy, this report investigates the approaches other nations have adopted in managing their own munitions industrial bases. The countries included in the analysis are Australia and the United Kingdom, which account for a significant range of industrial capabilities and policy perspectives. This study also provides an analytical examination of MSP policy, in particular looking at two groups of policy questions. The first pertains to security of supply vision that drove the MSP by requiring domestic production of mostly army munitions but may be perceived as very different in the post-Cold War period. The imposed domestic structure of the industry, its organization and resulting incentives, and the retainer premium are analyzed in detail. The second covers the contractual issues related, in particular, to the priority of supply and the implied requirement of a surge capacity which, in turn, generates a peak-load premium. Having underlined the need for change but abstaining from policy suggestions that might not fit the Canadian policy environment, the report concludes by offering five feasible policy suggestions that aim to preserve the security of supply but at least partially dispose of the premia.

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