Pentagon Warns Major Defense Contractors It Is Reviewing Their Performance
The review stems from a presidential executive order calling for a ban on stock buybacks and limits to executive compensation
- The Pentagon warned defense contractors of impending performance reviews to identify companies failing to fulfill contracts.
- President Trump has also called for executive-compensation limits for underperforming defense companies.
- Defense companies have been walking a tightrope trying to satisfy both Trump and their shareholders.
The Pentagon has warned defense contractors to brace for sweeping performance reviews that will identify companies it says aren’t fulfilling their contracts, according to a message sent to the industry late last week.
The reviews were the result of President Trump’s January executive order threatening to cancel the contracts of underperforming defense companies that buy back their shares or pay dividends.
“We have completed initial reviews to assess company performance as part of this executive order and will now undergo an extended period of review in which we will make noncompliance determinations,” Michael Duffey, the undersecretary of defense in charge of weapons buying, wrote in a Feb. 6 email to executives reviewed by The Wall Street Journal.
“Following the upcoming decision period, we will be in touch with identified companies to begin remediation plans,” he said.
The email wasn’t a formal notification of noncompliance under the executive order, Duffey said.
Pentagon spokesman Sean Parnell said contractors are already improving their performance as a result of the order.
“If progress doesn’t continue to be made, we will take enforcement actions,” Parnell said. “The Department of War will partner with those who perform—and hold accountable those who do not.”
Trump has also called for executive-compensation limits for underperforming defense companies, a message repeated by Defense Secretary Pete Hegseth during a rally with shipbuilders at General Dynamics’ Bath Iron Works in Maine.
“No more excuses, no more barriers to entry, no more monopolies, no more egregious executive bonuses, no more stock buybacks, no more ridiculous CEO salaries—especially for companies that can’t make things on time,” Hegseth said.
Since the executive order was announced, defense companies have been walking a tightrope trying to satisfy both Trump and their shareholders. During quarterly earnings calls late last month, executives from RTX, General Dynamics and other contractors boasted about billions of dollars in capital investments their companies have made to expand weapons manufacturing and defended dividend payouts.
The Pentagon has also reached agreements with Lockheed Martin and RTX to expand production of munitions. And the Pentagon made a $1 billion investment in L3Harris Technologies’ to accelerate missile production.
“The engagements and work we’ve done together over the past year is a start,” Duffey wrote in his email last week. “You have come to the negotiation table, but there’s a lot more work to do.”