Sen. Elizabeth Warren, a Democrat from Massachusetts and ranking member of the Senate Banking, Housing, and Urban Affairs Committee, sits to the left and Sen. Jack Reed, a Democrat from Rhode Island, speaks during his confirmation hearing on Thursday, October 30, 2025, in Washington, DC.
Eric Lee | Bloomberg | Getty Images
The Senate Armed Services Committee approved a must-pass bill that includes provisions that would prohibit some defense contractors from conducting stock buybacks or paying dividends without approval from the Department of Defense.
The measure, an annual bill known as the National Defense Authorization Act, was approved 18-9 in a closed committee meeting last week. The inclusion of the stock buyback provision in the committee’s bill significantly increases its chances of passage and could lead to major changes in the way the Pentagon interacts with some of the nation’s largest companies.
Its bipartisan nature also highlights how the Republican Party under President Donald Trump is abandoning some of its free-market traditions and aligning itself with the more interventionist Democratic Party. This obligation is expected to face strong opposition from the companies to which it applies. lockheed martin, Northrop Grumman and boeing.
Sen. Elizabeth Warren (D-Mass.), a member of the committee, worked to ensure that the bill was included in the committee’s bill. The goal, he said in an interview, was to “bring some discipline to a defense contractor that has been out of control for years.”
“These giant defense contractors are buying back their own stock for the sole purpose of inflating stock prices and improving pay for corporate executives,” she said. “Due to the limitations of the NDAA, companies cannot be held to such obligations if they have not even fulfilled their government contracts.”
The provisions of Section 815 of the bill would, among other things, prohibit the Department of Defense from entering into a contract with a contractor unless the contractor agrees in writing not to “purchase the stock of such entity or the parent entity of such entity that is listed on a national securities exchange” or “not to pay dividends or make any other distribution of capital with respect to the stock securities of such entity.”
The provision is scheduled to take effect on June 15, 2027, and the Secretary of Defense may agree to waive the restrictions if the contractor provides a “qualified defense investment plan.”
Under the bill, the Department of Defense would be required to begin a review process to determine which contractors violate the provision by making stock buybacks or paying dividends without waivers. A violation could also occur if an exempt contractor “underperforms with respect to prioritization, investment, or production.”
Non-compliant contractors may be subject to a number of penalties for non-compliance, including suspension of contract payments and loss of eligibility for contracts and competitive grants.
Sen. Jack Reed (DR.I.), ranking member of the Senate Armed Services Committee, said this provision was included in the NDAA on a bipartisan basis.
“It was bipartisan across the board,” he told CNBC. “We set contractual requirements and if we can’t meet them, it would be wrong to turn around and buy back inventory rather than reinvest in production equipment or other aspects.”
Asked if he thought the bill would pass negotiations in the House, he said he hoped the House would “appreciate” that “if we sign a contract, we expect it to be implemented.”
The bill is likely to receive significant support from Republicans. President Trump signed an executive order earlier this year barring defense contractors from buying back stock or paying dividends, making it even harder for Republicans to object.
Sen. Rick Scott (R-Florida), who serves on the committee, expressed support in an interview with CNBC on Tuesday.
U.S. Sen. Rick Scott (R-Florida) walks through the Capitol as Senate Republicans gather to vote on leadership positions, including Senate Majority Leader, for the 119th Congress in Washington, U.S., November 13, 2024.
Leah Millis | Reuters
“If you’re making money from the federal government, you shouldn’t be giving it to shareholders before we’ve done what we need to do,” said Scott, who previously served as CEO of a publicly traded health care company.
Most of the NDAA’s provisions come from Warren’s bill, the Defense Contracting Preemption Act by Sen. Josh Hawley (R-Missouri) and Sen. Mike Lee (R-Utah), which would also block stock buybacks and dividend payments.
Sen. Tim Sheehy (R-Mont.), also a member of the Armed Services Committee, gave a thumbs up when asked about the provision on Tuesday. Mr. Sheehy’s office did not respond to requests for comment about the reason for the thumbs-up or how he feels about the measure.
The House did not include stock buyback and dividend provisions in its version of the NDAA. Rep. Chris Deluzio, D-Pennsylvania, withdrew additional amendments when the House Armed Services Committee approved the bill, citing procedural issues, but they could be included in later amendments or after final negotiations between the House and Senate.
Still, it would be an unprecedented step for the federal government to intervene in the business practices of the private sector, and the move is expected to face a backlash. The Department of Defense works with tens of thousands of contractors, so the business impact could be far-reaching.
Major industry groups representing defense contractors have vocally opposed the move, warning that it amounts to an unprecedented market foray by the government.
The U.S. Chamber of Commerce sent a letter to the House of Representatives saying it “respectfully and firmly opposes such legislative efforts.”
“Reducing stock price volatility, enhancing market liquidity, lowering transaction costs, and increasing stability for retail investors during times of market turmoil are all proven benefits of share buybacks,” the chamber said in the letter. “Legal restrictions on this practice represent a flawed and unwarranted intrusion into free market mechanisms and do not address the fundamental challenges the executive order seeks to remedy.”
The Aerospace Industry Association also opposes the measure.
“Capital allocation tools such as dividends and share buybacks are essential to attracting private capital to fund innovation, production and workforce growth across the defense sector,” Eric Fanning, the group’s president and CEO, said in a statement to CNBC. “Arbitrary restrictions will make the industry less competitive for investment and reduce capital flows at a time when policymakers are looking to expand the industrial base.”
“Over time, the very markets that policymakers are trying to strengthen will shrink, harming both economic growth and national security. We urge the Senate to reconsider.” Mr. Fanning is a former Secretary of the Army.
Warren said she hopes the measure sticks, but also noted that knives will come out for it.
“This is a very popular provision, but it’s no joke. Lobbyists are working hard to protect the defense industry,” she said. “There is no other lobbying force as strong as this to protect American taxpayers, so we’ll see.”
