Business groups press Senate to drop Pentagon contractor payout limits

A coalition led by the U.S. Chamber of Commerce is urging Senate leaders to remove a defense bill provision that would limit stock buybacks, dividends and other capital distributions by companies contracting with the Pentagon. The measure, Section 815 of the Senate’s National Defense Authorization Act, would require Defense Department approval before covered contractors could make those payouts.

The Chamber and 40 other business organizations sent a letter Tuesday asking lawmakers to strike the provision from the annual defense policy bill, which the Senate is expected to begin considering this week. The groups said the language would reach across tens of thousands of companies that sell goods or services to the Defense Department and does not expressly separate major weapons manufacturers from other vendors.

Under the Senate bill, the Pentagon could not enter into contracts for goods or services unless the contractor agreed in writing not to repurchase listed equity securities of itself or a parent company, pay dividends, or make other capital distributions tied to equity securities. The restriction would begin June 15, 2027. The defense secretary could waive it if a contractor submitted a qualifying defense investment plan.

In their letter, the business groups said the provision would move routine corporate finance decisions from company boards and executives to the federal government. They argued that limiting distributions would not increase investment, but would block capital from being directed to what they described as its highest-value use.

Sen. Elizabeth Warren, Democrat of Massachusetts, pushed for the measure, according to CNBC. Members of the Senate Armed Services Committee told CNBC after a closed-door vote that it was added to the NDAA with bipartisan support. Warren had previously backed a related bill with Republican Sens. Josh Hawley of Missouri and Mike Lee of Utah.

Supporters say the policy is aimed at contractors that fail to meet Defense Department expectations while returning cash to shareholders. Warren said in a statement that it is time to stop contractors from putting Wall Street ahead of national security, adding that large military contractors are taking billions from taxpayers while enriching executives and shareholders instead of investing in defense.

The provision also reflects President Donald Trump’s January executive order targeting buybacks and dividends at defense contractors that underperform Pentagon expectations. Trump said when issuing the order that he wanted to encourage defense production and reinvestment by companies receiving federal defense work.

Business groups view the Senate language as broader and more rigid than the executive order. Will Anderson, vice president of corporate governance at Business Roundtable, which signed the Chamber letter, said Section 815 would give Washington an unprecedented role in ordinary company financial decisions and could create uncertainty for businesses in many industries.

The Senate Armed Services Committee approved the broader defense bill by an 18-9 vote. The committee report describes Section 815 as a recommendation to bar the defense secretary from entering into contracts unless contractors agree not to repurchase equity, pay dividends or make other capital distributions without a waiver based on a qualifying defense investment plan.

Some resistance is emerging inside the committee. Sen. Mike Rounds, Republican of South Dakota, told CNBC the provision goes beyond what he is comfortable with, saying he does not favor politicians directing how businesses build their operations. He also said limits on capital management could reduce incentives for investment that might help rebuild the defense industrial base.

Removing the provision from the Senate bill would require a floor amendment, and CNBC reported that such an amendment would face a 60-vote threshold. The House version of the NDAA does not include the buyback and dividend language, leaving the issue to be resolved in negotiations between the two chambers if the Senate keeps the provision.

This story draws on original reporting from CNBC.