Executive Order Overview
What It Does
The "Prioritizing the Warfighter in Defense Contracting" order targets defense contractors who have allegedly prioritized shareholder returns over production capacity and timely delivery to the U.S. military.
Key Prohibitions
- Stock Buybacks: Immediate ban for underperforming contractors until they produce "superior products, on time and on budget"
- Dividend Distributions: Prohibited during periods of underperformance (top 5 firms paid ~$8B in dividends last 12 months)
- Executive Compensation: Must be tied to on-time delivery performance, not financial metrics like EPS
- SEC Safe Harbor: SEC directed to consider barring affected contractors from safe harbor repurchase rules
Performance Criteria
The Secretary of War must identify contractors who:
- Fail to meet production benchmarks
- Insufficiently invest their own capital in production capacity
- Do not prioritize U.S. government contracts
- Maintain inadequate production speed
- Spend on buybacks/distributions while missing delivery targets
Enforcement Process
Identification Phase
Secretary of War identifies underperforming contractors who have engaged in stock buybacks or distributions while failing to meet production/delivery benchmarks.
Remediation Window
Identified contractors must submit board-approved remediation plans addressing production deficiencies and capital investment commitments.
Negotiation Period
Secretary negotiates with contractors to resolve issues and establish performance milestones.
Enforcement Actions
If remediation fails, Secretary may invoke Defense Production Act remedies and modify Federal Acquisition Regulations for future contracts.
Potentially Affected Contractors
The Pentagon list of underperforming contractors is expected February 6, 2026. RTX/Raytheon was explicitly singled out as "least responsive." Top 5 defense firms paid ~$8B in dividends and ~$10B in buybacks over the last 12 months. Major contractors likely affected include:
Lockheed Martin
F-35, missiles, space systems
RTX (Raytheon)
Missiles, radar, engines
Singled out as "least responsive"
Northrop Grumman
B-21, space, cyber
General Dynamics
Submarines, tanks, IT
Boeing Defense
Aircraft, satellites, weapons
L3Harris
Communications, sensors
Future Contract Requirements
The EO mandates that new defense contracts must include these requirements, with a proposed $1.5 trillion defense budget for FY2027 amplifying the stakes:
- Buyback Prohibition Clauses: No stock repurchases during periods of underperformance
- Distribution Restrictions: Dividend limitations tied to delivery milestones
- Executive Compensation Standards: Comp tied to on-time delivery and production increases, not EPS
- Performance Reporting: Enhanced transparency on production capacity vs. capital allocation
- SEC Enforcement: SEC directed to consider barring affected contractors from safe harbor repurchase rules