Limitations relating to capital distributions for defense contractors

(a) In general Except as provided in subsection (b), beginning on June 15, 2027, the Secretary of Defense may not enter into a contract for the procurement of goods or services, unless the contractor agrees in writing that the entity shall not— (1) purchase an equity security of such entity, or any parent entity of such entity, that is listed on a national securities exchange; or (2) pay dividends or make any other capital distribution with respect to the equity securities of the entity. (b) Waiver for qualifying defense investment The Secretary of Defense may waive the limitation in subsection (a) for the purpose of rewarding contractors that agree to a qualifying defense investment plan that is approved by the Secretary. (c) Review and enforcement (1) Establishment of formal review process 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, the Department of Defense contractors that are in violation of the requirements of subsection (a). (2) Evidence and notification of violation (A) In general If a contracting officer of the Department of Defense finds, or receives and substantiates, an allegation described in subparagraph (B), the Secretary shall immediately notify the contractor of the violation in writing. (B) Allegation described An allegation described in this subparagraph is any allegation relating to— (i) a contractor of the Department engaging in an activity prohibited under subsection (a), if the requirements of such subsection have not been waived under subsection (b); or (ii) a contractor who received a waiver under subsection (b) is underperforming with respect to prioritization, investment, or production such that the contractor no longer meets the requirements of the qualifying defense investment plan approved by the Secretary pursuant to subsection (b). (C) Contents of notice The notice issued under subparagraph (A) shall include, depending on the basis of the violation, a description of— (i) the conduct 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 requirements described in the qualifying defense investment plan under subsection (b). (3) Remediation (A) In general Not later than 15 days after the date on which the contractor receives the notice of a violation under paragraph (3)(A), the contractor may submit to the Secretary a remediation plan, approved by the board of directors of the contractor, for review by the Secretary. (B) Content of plan 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 requirements described in the qualifying defense investment plan under subsection (b) or an update of such a plan. (C) Identification of deficiencies 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. (4) Penalties If a contractor engages in an activity prohibited under subsection (a) and was not granted a waiver under subsection (b) or if the contractor was granted a waiver under subsection (b) but no longer meets the requirements of the qualifying defense investment plan, the contracting officer of the Department of Defense may take one or more of the following actions against the contractor for any contract entered into on or after the date specified in subsection (a): (A) Suspend payment under the contract. (B) Revoke the waiver issued under subsection (b) for the contractor as a whole or for any defined business segment. (C) Determine that the contractor lacks requisite responsibility for award of competitive contracts or other agreements. (D) Terminate the eligibility of the contractor to receive progress payments under section 3804 of title 10, United States Code. (E) Refer the matter to the Secretary for other administrative actions. (d) Report to Congress (1) In general Not later than one year after the date of the enactment of this Act, and annually thereafter until the date specified in subsection (e), the Secretary of Defense shall submit to the Committee on Armed Services of the Senate and the Committee on Armed Services of the House of Representatives a report that includes, for the one-year period preceding submission of the report— (A) a list of all contractors granted a waiver under subsection (b) and the justification for each waiver; and (B) a list of all entities that have violated agreements made pursuant to subsection (a) or diverged from the practices that justified the granting of a waiver under subsection (b). (2) Publication Not later than 30 days after the date of submission of a report under paragraph (1), the Secretary of Defense shall make such report publicly available. (e) Sunset This section shall cease to have effect on January 1, 2031. (f) Definitions In this section: (1) Equity security 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)). (2) National securities exchange 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). (3) Qualifying defense investment (A) In general The term qualifying defense investment means an expenditure by a contractor that is directly related to increasing the capacity or capability of its defense business segment, including— (i) construction, expansion, or modernization of manufacturing facilities, shipyards, or production lines dedicated to defense programs; (ii) acquisition of machine tools, capital equipment, and production technology for defense systems; (iii) applied non-reimbursable research and development directly supporting defense programs; (iv) establishment or expansion of workforce training programs and facilities for defense manufacturing skills; and (v) strategic stockpiling of raw materials and components critical to defense production. (B) Exclusions A qualifying defense investment does not include— (i) an allowable cost for reimbursement under any contract; or (ii) an expenditure used under any contract or other agreement as the basis for the Department of Defense to provide contract financing or advance payments.