Prioritizing the Warfighter in Defense Contracting Act of 2026

The term appropriate congressional committees means—

(A) the Committee on Armed Services and the Committee on Homeland Security and Governmental Affairs of the Senate; and

(B) the Committee on Armed Services and the Committee on Oversight and Government Reform of the House of Representatives.

The term covered employee means an employee, executive, or officer.

The term equity security has the meaning given such term in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)).

The term covered compensation —

(A) means—

(i) salary;

(ii) bonuses;

(iii) any compensation that is granted, earned, or vested based wholly or in part upon the attainment of any financial reporting measure or other performance metric;

(iv) equity-based compensation;

(v) time- or service-based awards;

(vi) awards based on nonfinancial metrics; and

(vii) any profits realized from the buying or selling of securities; and

(B) does not include—

(i) routine employee 401(k) plans; or

(ii) employee stock ownership plans.

The term large contractor means a contractor that received more than $250,000,000 in annual revenue from contracts or licenses from the Department of Defense in any of the previous 3 years.

The term national securities exchange means an exchange registered as a national securities exchange in accordance with section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f).

The term short-term financial metrics means—

(A) free cash flow;

(B) operating cash flow; and

(C) earnings per share driven by stock buy-backs.

The Secretary of Defense may not enter into a contract with a large contractor for the procurement of goods or services unless such contractor agrees in writing that—

(1) the entity shall not—

(A) purchase an equity security of such entity, or any parent entity of such entity, that is listed on a national securities exchange; or

(B) pay dividends or make any other capital distribution with respect to the equity securities of the entity; and

(2) the covered compensation of a covered employee of such entity shall—

(A) comply with the requirements of section 3744 of title 10, United States Code;

(B) not be linked to short-term financial metrics; and

(C) not exceed $5,000,000 per calendar year.

Any contractor subject to the requirements of subsection (a) shall develop and implement a plan to prevent the activities prohibited under that subsection.

Prior to entering into a contract with the Department of Defense, and annually thereafter for the duration of the contract, a contractor shall submit to the contracting officer of the Department a certification that to the best of the knowledge of the contractor, neither the contractor nor any covered employee of the contractor is engaged in any of the activities prohibited under subsection (a).

Beginning on the date of the enactment of this Act, and on a rolling basis thereafter, the Secretary of Defense—

(A) shall review and determine whether a large contractor meets the contractor metrics described in paragraph (4); and

(B) for any large contractor assessed by the Secretary to meet such metrics, may grant the contractor a waiver of the requirements of subsection (a).

For any waiver granted under paragraph (1), the Secretary shall submit to the appropriate congressional committees notification of the waiver that includes justification for the waiver.

For any contractor granted a waiver under paragraph (1), the Secretary shall conduct, not later than 1 year after the date on which the contractor was granted a waiver under such paragraph and not less frequently than once a year thereafter, a review to determine whether the contractor continues to meet the metrics described in paragraph (4).

The Secretary may revoke a waiver issued to any contractor that the Secretary determines, during a review conducted pursuant to subparagraph (A), no longer meets the metrics described in paragraph (4).

The contractor metrics described in this paragraph are as follows:

(A) Not less than 80 percent of the time during the preceding fiscal year, the contractor met contract requirements regarding delivery dates with demonstrated, fieldable capability or associated technical achievement.

(B) Not less than 80 percent of the time during the preceding fiscal year, the contractor met contract readiness requirements.

(C) Not less than 80 percent of the time during the preceding fiscal year, the contractor demonstrated technical performance metrics and regular value assessments with the user community.

(D) Not less than 80 percent of the time during the preceding fiscal year, the contractor responded to requests for certified or uncertified cost or pricing data by the due date stated in the request for submissions.

Nothing in this subsection may be construed to supersede existing limitations that restrict Federal funds from being used for contractor employee compensation.

Not later than 30 days after the date of the enactment of this Act, the Secretary of Defense shall establish a formal review mechanism for identifying, on a continuing basis, Defense contractors that are in violation of the requirements of subsection (a).

The Secretary shall review all contracts in existence on the day before the date of the enactment of this Act and identify any contract to be modified in the interest of the Department.

For each contract identified by the Secretary pursuant to subparagraph (A), the Secretary shall renegotiate such contract in accordance with the requirements of this section.

If a contracting officer of the Department finds, or receives and substantiates, an allegation described in subparagraph (B), the Secretary shall—

(i) immediately notify the contractor of the violation in writing; and

(ii) track and continually update the allegation in the Contractor Performance Assessment Reporting System and the System for Award Management of the General Services Administration, for shared use across contracting officers.

An allegation described in this subparagraph is any allegation relating to—

(i) a contractor of the Department or any covered employee of such contractor engaging in an activity prohibited under subsection (a), if the requirements of such subsection have not been waived under subsection (c)(1); or

(ii) a contractor who received a waiver under subsection (c)(1) that is underperforming with respect to prioritization, investment, or production such that the contractor no longer meets the contractor metrics described in subsection (c)(4).

The notice issued under subparagraph (A)(i) shall include, depending on the basis of the violation, a description of—

(i) the conduct of the contractor or the covered employee of the contractor that is prohibited under subsection (a); or

(ii) the nature of the underperformance or insufficient prioritization, investment, or production speed of the contractor that fails to meet the contractor metrics described in subsection (c)(4).

Not later than 15 days after the date on which the contractor receives the notice of a violation under paragraph (3)(A)(i), the contractor may submit to the Secretary a remediation plan, approved by the board of directors of the contractor, for review by the Secretary.

The remediation plan submitted under subparagraph (A) shall include a description of the manner by which the contractor shall remedy the violation, including, if applicable, a strategy for meeting the contractor metrics described in subsection (c)(4).

If the Secretary identifies deficiencies in the remediation plan submitted under subparagraph (A), the Secretary shall engage with the contractor as needed to resolve such deficiencies.

If a contractor engages in an activity prohibited under subsection (a) and was not granted a waiver under subsection (c)(1) or if the contractor was granted a waiver under subsection (c)(1) but no longer meets the contractor metrics described in subsection (c)(4), the contracting officer of the Department may take one or more of the following actions against the contractor:

(A) Suspend payment under one or more contracts, at the discretion of the Department.

(B) Revoke the waiver issued under subsection (c)(1).

(C) Terminate the eligibility of the contractor to receive progress payments under section 3804 of title 10, United States Code.

(D) Terminate the contract for default or cause in accordance with the termination clause for the contract.

(E) Refer the matter to the Secretary to claw back all or part of the covered compensation given to a covered employee.

(F) Refer the matter to the relevant suspension and debarment official.

(G) Refer the matter to the Secretary for other administrative actions.

(H) Refer the matter to the Attorney General for prosecution under any applicable law.

(I) Cease advocacy for the contractor for foreign military sales and direct commercial sales.

(J) Prohibit the Department from entering into a new contract with the contractor.

Not later than one year after the date of the enactment of this Act, and annually thereafter, the Secretary of Defense shall submit to the appropriate congressional committees a report that includes, for the one-year period preceding submission of the report—

(i) a list of all contractors subject to the requirements of subsection (a);

(ii) for each contractor, a copy of the certification submitted under subsection (b)(2);

(iii) a list of all contractors granted a waiver under subsection (c)(1) and the justification for each waiver; and

(iv) a list of all entities that have violated the certification submitted under subsection (b)(2) or diverged from the practices that justified the granting of a waiver under subsection (c)(1).

Not later than 30 days after the date of submission of the report under subparagraph (A), the Secretary shall make the report publicly available.

Not later than 90 days after the date of the enactment of this Act, and not less frequently than once every 90 days thereafter, the Secretary shall submit to the appropriate congressional committees a report that includes, for the period covered by the report—

(A) a list of all of the contractors that submitted a request for a waiver under subsection (c)(1); and

(B) the unclassified summaries of the materials submitted by such contractors to the Department in support of the requests for a waiver.