The lobbying push to nix the Pentagon’s defense contractor share purchase ban

The lobbying effort to kill the proposed shutdown of some defense contractors who buy their stock in the annual defense bill is growing, as the House of Representatives begins moving the bill this week.

The ban, which is similar to the one included in the Senate’s version of the National Defense Authorization Act for 2027, is proposed as an amendment for the House Rules Committee to consider as it debates the legislation Monday night. If it makes it into the final bill, it could upend how the Pentagon does business with tens of thousands of contractors such as Boeing, Lockheed Martin again Northrop Grumman.

Reps. Chris Deluzio, D-Pa., and John Garamendi, D-Calif., are proposing an amendment to the House, which is likely to vote on the NDAA later this week.

Before the Rules Committee meeting, industry groups led by the Chamber of Commerce sent a letter to the committee urging it to reject the amendment. Signatories include the Chamber, the Aerospace Industries Association and the Business Roundtable.

The ban on stock purchases and dividend payments “raises serious concerns about the unprecedented expansion of the federal government’s role in imposing restrictions on legitimate corporate governance and capital allocation decisions made by businesses,” the groups wrote in the letter, which was shared with CNBC.

“Prohibiting covered defense contractors from participating in other statutory dividends, share repurchases, and other distributions without obtaining a waiver from the DoW sets a troubling precedent for how Washington is setting how businesses handle distribution decisions that have long been the responsibility of corporate leadership and shareholders,” the letter said.

An amendment being considered in the House would prevent the Department of Defense from entering into a contract with a company unless the contractor agrees not to buy its stock. The ban can be waived at the Pentagon’s discretion.

It is identical to a provision in the Senate version of the NDAA that was added to the bipartisan bill and would prevent contractors from paying dividends. Both seek to consolidate President Donald Trump’s executive order that sought to implement the ban, and the provision’s inclusion in a bill approved by the Senate Armed Services Committee greatly increases its chances of becoming law.

Sponsors say the law is intended to force contractors to deliver their needs before they pay for them. Critics of the defense contract have long argued that the companies bill the federal government for cost overruns and delayed products.

Sen. Elizabeth Warren, D-Mass., who is leading the charge in the Senate, argued to CNBC earlier this month that it was intended to “bring a little discipline to these defense contractors who have been working for years.”

Industry groups are now pushing back hard against the measure, warning it would have a negative impact if approved.

“Creating a framework that prevents companies from participating in general capital allocation decisions unless they receive government buy-in sends a different signal and risks directly discouraging the type of market participants that stakeholders are trying to attract,” the letter reads.

Deluzio and Garamendi’s amendment is one of more than 1,300 proposed before the House Rules Committee.