Defense contractors would be barred from buying back their stock in bill

The Senate Armed Services Committee approved a must-pass bill with a provision that could bar some defense contractors from executing stock buybacks or paying dividends unless they have Defense Department approval.

The measure, an annual bill known as the National Defense Authorization Act, was approved 18-9 in a closed-door committee meeting last week. The stock buyback provision’s inclusion in the committee’s bill greatly increases its chances of becoming law and sets up a potential sea change in how the Pentagon interacts with some of the country’s largest businesses.

Its bipartisan nature also underscores how Republicans under President Donald Trump have abandoned some of their free-market orthodoxy to join with more interventionist Democrats. The mandate is expected to face fierce blowback from the companies to which it would apply, such as Lockheed Martin, Northrop Grumman and Boeing.

Sen. Elizabeth Warren, D-Mass., a committee member, helped secure the measure’s inclusion in the committee’s bill. In an interview, she said it’s intended to “bring a small amount of discipline to these defense contractors who have been running wild for years.”

“These giant defense contractors buy back their own stock for the sole purpose of plumping up the stock price and improving the pay of the corporate executives,” she said. “The restriction in the NDAA says if you’re a company that’s not even performing on your government contracts, you don’t get to do that.”

The provision in the bill, Section 815, specifically would prohibit the Pentagon from entering into contracts with contractors unless the contractor agrees in writing not to “purchase an equity security of such entity, or any parent entity of such entity, that is listed on a national securities exchange” or “pay dividends or make any other capital distribution with respect to the equity securities of the entity.”

The provision would take effect June 15, 2027. The defense secretary could agree to waive the limitation if the contractor provides a “qualifying defense investment plan.”

The Pentagon would be required under the bill to start a review process to find out which contractors are violating the provision by engaging in stock buybacks or paying dividends without a waiver. Waived contractors could also be in violation if they are “underperforming with respect to prioritization, investment, or production.”

Contractors who are in violation could be whacked with a number of penalties for noncompliance, including suspension of contract payments and loss of eligibility for contracts and competitive grants.

Sen. Jack Reed, D-R.I., the ranking member of the Senate Armed Services Committee, said…