Ammonopoly: General Dynamics’ sweet deal to supply Canada’s ammunition

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A member of Joint Task Force 2 shot and killed an Islamic State insurgent using his McMillan TAC-50 sniper rifle, at a distance of more than 3.5 kilometres.

Two officers responded to a complaint of a male brandishing a knife in Burnaby, B.C.; after a failed attempt by one Mountie to Taser the suspect, the second officer shot him in the abdomen with her Smith & Wesson 9 mm pistol.

In remote wilderness in Northern Ontario, a Canadian Ranger fired his .303-calibre Lee-Enfield Mark 4 bolt action rifle six times into the air in hopes of attracting the attention of a missing trapper he was searching for. Camped nearby awaiting rescue, the trapper fired twice in response.

Although separated considerably by distance, time and details, these shootings share one thing in common: They involve federal employees using government-issued bullets. Every year, the Canadian government buys a whole lot of ammunition – the total annual cost of that ammo to the Canadian Armed Forces, the RCMP, and our corrections and fisheries officers is more than $160 million. But while the government is obligated to invite competing bids for most procurement activities, when it comes to bullets, there’s only one shop in town: global aerospace and defence giant General Dynamics, based in Fairfax County, Virginia. A 1,450-employee subsidiary known as General Dynamics Ordnance and Tactical Systems (GD-OTS) Canada manufactures most of those bullets at three plants in Quebec, all of which were once federally owned. Right now, General Dynamics has a sweet deal: In return for ensuring we have a made-in-Canada supplier in the event of war, the government pays GD-OTS Canada a fee of more than $70 million per year – in addition to the cost of any ammunition we buy.

It’s hard to say whether we’re getting bilked, as neither the feds nor the company will reveal the per-bullet cost. But Minister of National Defence Harjit Sajjan seems curious. Three years ago, he commissioned a review of the federal Munitions Supply program “to ensure the underlying principles of the program are still relevant, while examining its performance and benefits for Canadians.“ The report is due this year. In the meantime, here’s what we know about our secretive bullet maker.

Ammunition the Canadian government has purchased, by type

2009–present

Ammunition, up to

30 mm in diameter

$614,994,145

Ammunition, 75 to

125 mm in diameter

$512,437,048

Ammunition, 30 to

75 mm in diameter

$232,123,787

Other miscellaneous

ammunition

$189,807,040

Rockets, rocket

ammunition

and rocket

components

$161,532,943

Pyrotechnics

$130,575,372

Fuses and primers

$79,309,013

Ammunition, more than

125 mm in diameter

$76,393,145

Grenades

$47,877,939

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

Ammunition the Canadian government has purchased, by type

2009–present

Ammunition, up to

30 mm in diameter

$614,994,145

Ammunition, 75 to

125 mm in diameter

$512,437,048

Ammunition, 30 to

75 mm in diameter

$232,123,787

Other miscellaneous

ammunition

$189,807,040

Rockets, rocket

ammunition

and rocket

components

$161,532,943

Pyrotechnics

$130,575,372

Fuses and primers

$79,309,013

Ammunition, more than

125 mm in diameter

$76,393,145

Grenades

$47,877,939

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

Ammunition the Canadian government has purchased, by type

2009–present

Ammunition, up to

30 mm in diameter

$614,994,145

Ammunition, 75 to

125 mm in diameter

$512,437,048

Ammunition, 30 to

75 mm in diameter

$232,123,787

Other miscellaneous

ammunition

$189,807,040

Rockets, rocket ammunition

and rocket components

$161,532,943

Pyrotechnics

$130,575,372

Fuses and primers

$79,309,013

Ammunition, more than

125 mm in diameter

$76,393,145

Grenades

$47,877,939

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

An unbalanced relationship

As part of broader efforts to understand what the federal government purchases and how, The Globe and Mail obtained federal procurement data from ThinkData Works, a Toronto-based data services company. Although the federal government makes this data readily available online, ThinkData cleaned and processed it in ways that made it far easier to analyze and understand.

One of the data’s more surprising revelations is just how much ammunition Ottawa buys: an annual average of about $230 million between 2009 and 2016. That includes small arms ammunition for assault rifles and pistols, plus everything from grenades to artillery shells and mortar rounds. The vast majority of it goes to the Canadian Armed Forces, whose ammunition needs include not only small arms but also a wide array of specialized weapons mounted on tanks, ships and aircraft. By value, ammunition purchased for the second-largest federal user – the RCMP – costs barely 1% as much.

For decades, the federal government has sought to meet most of its purchasing needs through competitive bids. Ammunition is a rare exception: The federal government sole-sources nearly all of it from GD-OTS, which it calls “the designated preferred supplier of ammunition to the Crown.”

Ottawa’s reliance on the company is almost total. The company, in contrast, is among General Dynamics’ least significant subsidiaries. Sometimes known by its acronym GD-OTS (pronounced “jee-dots”), it employs 1,450 and operates three plants in Quebec. Although there’s little publicly available information about its finances, over the years it’s been often suggested that half or more of its production is exported, mainly to the U.S.

GD-OTS Canada is closely related to a company with the same name (minus the ‘Canada” bit) based in St. Petersburg, Florida. That company is one of three business units that comprise General Dynamics “Combat Systems” group. During the last three years, revenues from the entire weapons systems and munitions operations ranged around $1.5 billion, or less than 5% of the company’s total. The word “ammunition” occurred just three times in General Dynamics’ latest, 80-page annual report.

Ottawa’s ammunition budget might seem huge, but it’s actually a relatively insignificant purchaser in the global arms trade. And it can’t satisfy its needs at your local sporting goods store. Hunters typically use hollow-point ammunition that expands upon striking a target, which causes greater tissue damage. Military small-arms ammunition, in contrast, must conform to the Hague Convention. The Armed Forces buy “full metal jacket” bullets that don’t “cause undue harm to the enemy,” a government spokesperson explained.

Similarly, there’s no commercial market for 120 mm tank ammunition and 57 mm rounds for naval guns. “They can’t put on a sale for hand grenades at Walmart, or give a two-for-one special,” the spokesperson explains. “So they wait until they have an actual sale before they commit to production.” Lead times are huge as a result: From order to delivery, this process can take between 18 months and three years.

The Canadian Armed Forces replenishes its stocks of ammunition for training and operations annually. It sends a requisition to Public Services and Procurement Canada, the department responsible for most of Ottawa’s buying. GD-OTS provides the government with cost estimates for material, labour and other expenses, and the government adds permissible profit margins to each component, as laid out in its Supply Manual.

GD-OTS declined The Globe’s request for interviews and a plant tour. But experts familiar with the process said the company can produce a variety of ammunition using the same equipment; lines can be reconfigured, sometimes in a matter of hours.

The resulting product is a high-tech fusion of chemistry, chemical engineering, physics, materials science and other disciplines. “Because it’s got to do something pretty remarkable,” says Charles Davies, a retired colonel and former logistics officer. “It’s going to be booted out a gun barrel at a very high rate of acceleration, and travel a long distance and function reliably at the other end, and not kill anybody on the friendly side.”

Prior to accepting delivery, federal bodies typically test ammunition to ensure it meets accuracy, velocity, lethality and other requirements. For an order of 9 mm rounds put out to tender last year, the RCMP insisted that “five-shot groups must average not more than 15 centimetres at 25 meters fired from a 9 mm RCMP service pistol, hand held on a sandbag rest.” The Department of National Defence sometimes observes GD-OTS testing ammunition at their shared test facility in Nicolet.

GD-OTS Canada supplies a full range of ammunition and explosives to the armed forces, ranging from 9mm handgun bullets to 155 Howitzer rounds and grenades

155 mm

Howitzer

57mm/L70

25 x 137 mm

Hand Grenade

C13/M67

12.7 mm

7.62 mm

5.56 mm

9 mm

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

GD-OTS Canada supplies a full range of ammunition and explosives to the armed forces, ranging from 9mm handgun bullets to 155 Howitzer rounds and grenades

155 mm

Howitzer

57mm/L70

25 x 137 mm

Hand Grenade

C13/M67

12.7 mm

7.62 mm

5.56 mm

9 mm

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

GD-OTS Canada supplies a full range of ammunition and explosives to the armed forces, ranging from 9mm handgun bullets to 155 Howitzer rounds and grenades

155 mm

Howitzer

57mm/L70

25 x 137 mm

Hand Grenade

C13/M67

12.7 mm

7.62 mm

5.56 mm

9 mm

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

Fear of Foreigners

GD-OTS supplies most of Canada’s ammunition for one reason: the federal government doesn’t trust foreign companies. It fears that during wartime, offshore suppliers will wind up supplying their own national governments, leaving Canadian soldiers with empty magazines at the worst possible moment.

This fear dates almost from Confederation. Back in the late 1870s, the Snider Enfield breech-loading rifles and ammunition the British left behind were becoming obsolete. Ottawa might have again turned to Britain to hammer out some kind of supply agreement. But informed partly by Britain’s various imperial adventures, Canada instead chose to make its own ammunition. In 1881, the government opened its first cartridge factory (later renamed Dominion Arsenal) in Quebec City.

In practice, Canada remained dependent on foreign producers for decades afterward. But during the Second World War, the federal government doubled down on its made-in-Canada strategy. It built new Dominion Arsenal plants in Quebec, notably a large-caliber manufacturing facility at Le Gardeur and an “energetic materials” plant in Valleyfield. During the war, these plants employed thousands; afterwards a dozen of them were folded into a new Crown Corporation called Canadian Arsenals Ltd.

Postwar Canada’s ammunition needs were modest. The federal government closed many of its plants, and by the 1960s it began leaning towards privatizing the rest. The first to go was the Valleyfield explosives plant, sold in 1965.

But this was no typical privatization. The Cold War was on, and Ottawa’s confidence in foreign manufacturers hadn’t improved. Meanwhile, its plants were in a woeful state; They lost money, lacked skilled workers and had no offshore customers to speak of. The federal government spent eight years restructuring Canadian Arsenals to attract buyers.

More importantly, Ottawa laid the foundations for a new relationship with private ammo makers. Introduced in the mid-1970s, the Munitions Supply Program designated half a dozen private companies as “preferred suppliers,” effectively granting rights of first refusal for federal ammunition or small arms orders. The government also promised these companies notice of ammunition needs two years in advance, to help them manage their production lines. GD-OTS Canada also receives monthly payments from the Department of National Defence intended to “compensate the company for fixed costs such as overhead and maintenance, and enable reinvestment into the facilities.” Those payments amounted to nearly $70 million in 2016, and more than $75 million last year.

In return, the MSP companies promised to maintain and modernize their Canadian plants. They vowed to maintain surplus capacity such that they could quickly accelerate production if asked. And they promised to prioritize federal orders over those of international customers.

It worked. As Ottawa sought to extricate itself from making bullets, Quebec’s SNC engineering group was looking to diversify. During the 1980s it bought two WW2-era ammo plants (in Valcartier and Le Gardeur) and, years later, the Valleyfield explosives plant. For two decades SNC enjoyed a virtual monopoly selling ammunition to the federal government, while also expanding its export sales. It sold out to General Dynamics in 2007 for US$275 million.

Kenneth Epps, a retired small arms researcher with Project Ploughshares who studied Canada’s military industry for decades, saw irony in the transaction. “The Canadian government is claiming it needs to have its own national capacity for building this kind of equipment within Canada,” observed Mr. Epps, “when in fact many aspects of that capacity are controlled and even owned by U.S. corporations.”

But observers said Ottawa’s concerns about buying ammunition offshore is not unjustified. Charles Davies was a procurement officer for the Department of National Defence during the 1980s. He later commanded an ammunition depot, and after that served as a senior director responsible for material acquisition and support policy. Now retired, in recent years he’s consulted for both government and the defence industry.

“When demand goes way up, it goes way up everywhere,” Mr. Davies said. “When you need a lot more ammunition, it’s going to be tough to get it from the Americans, the Brits, the French or anybody else.”

GD-OTS Canada is a tiny unit of a massive American defence giant based in Falls Church, Virginia

Rough estimated revenue

General Dynamics Ordnance and

Tactical Systems Canada

$120,000,000

IS A UNIT OF…

General Dynamics weapons

systems and munitions

$1,633,000,000

WHICH IS A DIVISION OF…

Combat Systems Group

$5,949,000,000

WHICH IS A DIVISION OF…

General Dynamics

$30,973,000,000

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

GD-OTS Canada is a tiny unit of a massive American defence giant based in Falls Church, Virginia

Rough estimated revenue

General Dynamics Ordnance and

Tactical Systems Canada

$120,000,000

IS A UNIT OF…

General Dynamics weapons

systems and munitions

$1,633,000,000

WHICH IS A DIVISION OF…

Combat Systems Group

$5,949,000,000

WHICH IS A DIVISION OF…

General Dynamics

$30,973,000,000

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

GD-OTS Canada is a tiny unit of a massive American defence giant based in Falls Church, Virginia

Rough estimated revenue

General Dynamics Ordnance and

Tactical Systems Canada

$120,000,000

IS A UNIT OF…

General Dynamics weapons

systems and munitions

$1,633,000,000

WHICH IS A DIVISION OF…

Combat Systems Group

$5,949,000,000

WHICH IS A DIVISION OF…

General Dynamics

$30,973,000,000

THE GLOBE AND MAIL, SOURCE: THINKDATA WORKS

A Cold War anachronism?

More than 40 years after the Munitions Supply Program’s implementation, Ottawa no longer bears the burden of operating its own ammunition plants. But it still shoulders much of the associated costs and business risks. Last year, Ottawa agreed to pay GD-OTS Canada nearly $46 million simply to maintain its Le Gardeur plant “in suitable condition” to supply ammunition to Ottawa.

With the Cold War a fading memory, the MSP has long attracted accusations that it has become an expensive anachronism. More than a decade ago, the Department of National Defence’s Chief Review Service evaluated the program as part of a larger review of the department’s ammunition purchasing practices. The MSP suffered from insufficient management controls and ill-defined expectations, its report concluded, and was out-of-step with Ottawa’s strong and growing preference for competitive tenders and off-the-shelf procurement. And it wasn’t as if Canada had become truly self-sufficient: Domestic ammo makers remained “highly dependent” on foreign technology and components.

“If the MSP is to continue in any form, improvements are required to all elements,” it concluded.

Indeed, the report suggested the domestic ammunition industry had matured to the point where it no longer needed Ottawa’s intervention. Yet the MSP continued largely unmodified, although the number of preferred suppliers has dwindled to four: GD-OTS Canada, IMT Corp, Magellan Aerospace and Colt Canada. Not only do they continue to supply as much as three-quarters of the Canadian Armed Forces’ ammunition, but in recent years the MSP has been used to procure weapons and ammunition for the RCMP, Correctional Services, Fisheries and Oceans, the Canada Border Services Agency and even Parks Canada.

The American government, whose ammunition purchases dwarf Canada’s, actively seeks to avoid creating such monopolies. Indeed, when General Dynamics proposed to purchase SNC’s ammo operations more than a decade ago, the U.S. Federal Trade Commission worried the combined company might wind up with a North American monopoly for artillery shells and mortar rounds. It forced General Dynamics to sell off some of its U.S. operations before allowing the transaction to proceed.

Yet the MSP is not without admirers and defenders. In the early 2000s, the U.S. Department of Defense was struggling with how best to manage its own industrial base, which included government-owned ammunition plants. It hired the Rand Corp. to assess its options. For an alternative model, Rand looked north, praising what it regarded as Canada’s successful privatization of its ammunition plants. “The private owners of Canadian plants operate efficiently enough to thrive in international markets,” the Rand report noted. “Both government officials and private manufacturers report that prices have steadily declined since privatization.”

And while critics suggest Ottawa significantly overpays whenever it sole-sources bullets, the MSP’s supporters argue it wouldn’t do any better overseas. “There is a huge insurance cost to ship them across the ocean,” a government spokesperson says. “When you add the cost to ship the bullet from Europe to Canada, the bullet from Europe becomes significantly more expensive.”

The MSP’s logic was last tested during the deployment of the Canadian Armed Forces in Afghanistan. A 2015 federal study of how MSP suppliers responded confirmed GD-OTS was able to meet surging demand while at the same time shrinking lead times: Delivery times for 5.56 mm ammunition, which had been more than 40 months in 2004, fell to less than 20 months. “GD-OTS-C and the MSP provided a reliable source of ammunition during a period of high demand,” the report concluded.

Without the MSP, Davies says, Canada couldn’t have acquired enough ammunition to sustain its mission in Afghanistan. “Canada would have had to think seriously about whether they would even go there in the first place,” he says. And while it’s conceivable the U.S. government would have provided ammunition as a means of keeping Canada in the coalition, “you’d be begging.”

The MSP’s enthusiasts and detractors have a rare opportunity to air their perspectives as the federal government conducts a rare policy review of the MSP. According to the Department of National Defence, it began in 2015 and the results will be released “in due course.”

Editor’s note: A previous version of this story incorrectly said military small-arms ammunition must conform to the Geneva Protocol. In fact, they must conform to the Hague Convention. This version has been corrected.

The roughly 75-year-old Le Gardeur load-assemble-pack plant, located on the outskirts of repentigny, Quebec, is the most important ammunition plant in Canada. One of three manufacturing facilities owned by GD-OTS Canada, it features more than 150 buildings.

Satellite images show a complex that has been carefully desgined to minimize the potentially disastrous fallout from an explosion

3

1

2

1

PROTECTIVE BARRICADES

Rather than storing raw materials and finished ammunition in large warehouses, a series of more compact buildings is used. The smallest buildings to the west are intended for the most explosive materials, such as fuses. Many of these buildings are surrounded by thick barricades to protect from adjacent explosions and prevent “low-angle, high-velocity fragments from coming in,” says Charles Davies, a retired army colonel and former logistics officer.

2

EARTHEN BERM

The ammunition plant sits on more than 1,000 acres of land. Maintaining separation from the surrounding community is a prime consideration, so a new commuter rail line has been protected by a berm. “So far, the safety separations are very good,” Davies says. “If they can keep it that way, there’s no reason this site can’t continue to operate for some time. The challenge may become moving ammunition in and out through the built-up areas. That may start to cause local anxiety.”

3

STAGGERED WALKWAYS

“Do you notice that there are no places where one corridor goes straight into another one?” asks Davies. “It’s kind of like a First World War trench line, where everything’s offset so that an accident in one area will cause damage there, and the corridor will not channel pressure directly into another bay.”

THE GLOBE AND MAIL, SOURCE: GOOGLE MAPS

The roughly 75-year-old Le Gardeur load-assemble-pack plant, located on the outskirts of repentigny, Quebec, is the most important ammunition plant in Canada. One of three manufacturing facilities owned by GD-OTS Canada, it features more than 150 buildings. Satellite images show a complex that has been carefully desgined to minimize the potentially disastrous fallout from an explosion

3

1

2

1

PROTECTIVE BARRICADES

Rather than storing raw materials and finished ammunition in large warehouses, a series of more compact buildings is used. The smallest buildings to the west are intended for the most explosive materials, such as fuses. Many of these buildings are surrounded by thick barricades to protect from adjacent explosions and prevent “low-angle, high-velocity fragments from coming in,” says Charles Davies, a retired army colonel and former logistics officer.

2

EARTHEN BERM

The ammunition plant sits on more than 1,000 acres of land. Maintaining separation from the surrounding community is a prime consideration, so a new commuter rail line has been protected by a berm. “So far, the safety separations are very good,” Davies says. “If they can keep it that way, there’s no reason this site can’t continue to operate for some time. The challenge may become moving ammunition in and out through the built-up areas. That may start to cause local anxiety.”

3

STAGGERED WALKWAYS

“Do you notice that there are no places where one corridor goes straight into another one?” asks Davies. “It’s kind of like a First World War trench line, where everything’s offset so that an accident in one area will cause damage there, and the corridor will not channel pressure directly into another bay.”

THE GLOBE AND MAIL, SOURCE: GOOGLE MAPS

The roughly 75-year-old Le Gardeur load-assemble-pack plant, located on the outskirts of repentigny, Quebec, is the most important ammunition plant in Canada. One of three manufacturing facilities owned by GD-OTS Canada, it features more than 150 buildings. Satellite images show a complex that has been carefully desgined to minimize the potentially disastrous fallout from an explosion

3

1

2

1

PROTECTIVE BARRICADES

Rather than storing raw materials and finished ammunition in large warehouses, a series of more compact buildings is used. The smallest buildings to the west are intended for the most explosive materials, such as fuses. Many of these buildings are surrounded by thick barricades to protect from adjacent explosions and prevent “low-angle, high-velocity fragments from coming in,” says Charles Davies, a retired army colonel and former logistics officer.

2

EARTHEN BERM

The ammunition plant sits on more than 1,000 acres of land. Maintaining separation from the surrounding community is a prime consideration, so a new commuter rail line has been protected by a berm. “So far, the safety separations are very good,” Davies says. “If they can keep it that way, there’s no reason this site can’t continue to operate for some time. The challenge may become moving ammunition in and out through the built-up areas. That may start to cause local anxiety.”

3

STAGGERED WALKWAYS

“Do you notice that there are no places where one corridor goes straight into another one?” asks Davies. “It’s kind of like a First World War trench line, where everything’s offset so that an accident in one area will cause damage there, and the corridor will not channel pressure directly into another bay.”

THE GLOBE AND MAIL, SOURCE: GOOGLE MAPS