Lobbying Intensifies Against Proposed Ban on Defense Contractor Stock Buybacks in NDAA

Lobbying efforts to kill a proposed ban on some defense contractors buying back their own stock in a must-pass annual defense bill are heating up, as the House of Representatives begins to move the legislation this week.

The prohibition, a version of which was included in the Senate's version of the National Defense Authorization Act for fiscal 2027, is proposed as an amendment for the House Rules Committee to consider as it discusses the legislation Monday night.

If it makes it into the final bill, it could upend how the Pentagon does business with its tens of thousands of contractors, such as Boeing, Lockheed Martin and Northrop Grumman.

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

Prior to the rules committee's 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 Business Roundtable.

The ban on executing buybacks and paying dividends "raises serious concerns about an unprecedented expansion of the federal government's role in restricting lawful 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 engaging in otherwise lawful dividends, share repurchases, and other capital distributions unless they obtain a waiver from the DoW establishes a troubling precedent in which Washington effectively dictates how businesses manage capital allocation decisions that have traditionally remained the responsibility of corporate leadership and shareholders," the letter said.

The amendment under consideration in the House would bar the Department of Defense from entering into a contract with a company unless the contractor agrees to not purchase its own stock. The prohibition could be waived at the Pentagon's discretion.

It's similar to the provision in the Senate's NDAA version that was added into the bill on a bipartisan basis and would also bar contractors from paying dividends. Both seek to codify President Donald Trump's executive order that sought to implement the prohibition, and the provision's inclusion in the Senate Armed Services Committee's approved bill greatly increases its chances of becoming law.

Proponents say the provision is intended to force contractors to deliver before they pay themselves. Critics of defense contracting have long argued that companies are bilking the federal government with 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's intended to "bring a small amount of discipline to these defense contractors who have been running wild for years."

Industry groups are now pushing back hard against the measure, warning it would have the opposite effect if approved.

"Creating a framework that prohibits companies from engaging in ordinary capital allocation decisions unless they obtain a government waiver sends the opposite signal and risks discouraging precisely the type of innovative and non-traditional market participants policymakers are actively trying to attract," the letter said.

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