CHRO Association Opposes Defense Contractor Pay and Capital Return Restrictions

Congress is advancing the FY2027 National Defense Authorization Act (NDAA) which proposes restrictions on defense contractor buybacks/dividends and executive compensation. 

Why it matters: If enacted, this NDAA provision would grant the federal government unprecedented authority to restrict how private companies allocate their earnings, including the ability to prohibit dividend payments to shareholders. It also raises broader concerns about government intrusion into private-sector business decisions and could establish a precedent for expanded federal oversight of corporate governance and capital allocation.

What’s in the bill: A provision to bar the Department of Defense from awarding contracts unless contractors agree in writing not to:

• conduct stock buybacks of listed equity securities, including parent entities; or

• pay dividends or make other capital distributions.

The Secretary of Defense could waive the limitation if the contractor provides a qualifying investment plan showing steps to expand production capacity; invest in R&D; and strengthen workforce programs.

However, even waived contractors could be deemed noncompliant if they are “underperforming” on prioritization, investment or production.

Potential implications: The provision would take effect June 15, 2027. If enacted as written, contractors may need to:

• prioritize capital investment over shareholder distributions;

• seek waivers by showing “sufficient investment” in production and R&D;

• prepare for applicability across public and private contractors, i.e., subsidiaries and joint ventures;

• manage noncompliance exposure, including suspension of contract payments and loss of eligibility for contracts and competitive grants; and

• address heightened legal and compliance risk if SEC safe harbor protections for buybacks become less reliable.

Our advocacy: The CHRO Association sent a letter opposing the Prioritizing the Warfighter in Defense Contracting Act (S. 4212) when it was first introduced and will send another letter to Congress opposing inclusion of this bill. We are also participating in an employer coalition formed to oppose this effort. Companies concerned about this bill should contact both House and Senate leaders to express their views.

Please contact Chatrane Birbal ([email protected]) with advocacy questions.