Defense officials would pressure underperforming contractors to improve production

The Secretary of War must review covered defense contractors and may pursue legal or contract remedies when problems are not resolved. The review covers contractors supplying critical weapons, supplies, or equipment who are underperforming, failing to invest in production, giving too little priority to government contracts, or producing too slowly while making stock buy-backs or other corporate distributions. The Secretary must notify an identified contractor of the problems found. Where allowed by law, the contractor may submit a board-approved plan within 15 days after notice. Any enforcement action must follow applicable law and may use voluntary agreements, Defense Production Act authorities, or federal contract rules. The first review is due within 30 days of January 7, 2026, and must continue afterward. The Secretary may skip another review for contractors already studied in the required manner.

Within 60 days, the Secretary must take steps to add performance-based restrictions to future defense contracts. These terms would apply to new contracts, renewals, and other future contracts with defense contractors. Contracts must prohibit stock buy-backs and corporate distributions during specified periods of underperformance, contract violations, weak prioritization, inadequate investment, or insufficient production speed. Executive incentive pay must be tied to on-time delivery, higher production, and needed investments rather than short-term financial measures tied to buy-backs. Contracts must allow the Secretary to cap executive base salaries at current levels, with inflation adjustments, after a qualifying finding, consistent with applicable law. The Secretary must take these steps within 60 days of January 7, 2026. Salary caps may last long enough to review whether incentive pay is tied to the required performance measures.

The Secretary of War must consider ending or denying certain sales advocacy for identified contractors, while the SEC Chairman must consider changing buy-back rules for those contractors. The sales review concerns contractors competing for international Foreign Military Sales or Direct Commercial Sales. The SEC review concerns defense contractors identified through the order’s review process. The sales decision must be considered with the Secretaries of State and Commerce. The order calls for consideration of these actions, not their automatic implementation. Any action remains subject to applicable law and agency authority.