In this context the “Secretary of War” is the Cabinet official who leads the U.S. Department of War, which the administration has designated as a secondary title for the Department of Defense. The post is functionally the same as the traditional Secretary of Defense: it heads the defense department, oversees all U.S. military services, and is responsible for implementing this Executive Order in defense contracting. As of early 2026, the position is held by Pete Hegseth, listed as “Secretary of War” and top departmental leader on the official Department of War site.
The Defense Production Act (DPA) gives the President, and agencies he delegates like the Secretary of War/Defense, several powers that can be used to enforce this order:
• Title I – Priorities and allocations: the Secretary can require companies to accept and prioritize certain government contracts and orders for materials and services needed for national defense, and can allocate or control the distribution of key materials, services, and facilities. Willful violations can carry criminal penalties. • Title III – Expansion of productive capacity and supply: the Secretary (under delegated authority) can use federal financing tools—such as direct loans, loan guarantees, purchase commitments, and other incentives—to create, expand, or modernize domestic production capacity for critical defense items.
These tools let the Secretary push contractors to prioritize warfighting needs and expand output, backing that up with legal compulsion and targeted financial support, in addition to normal contract remedies.
In SEC practice, a “safe harbor” is a rule that shields companies from certain legal liabilities if they follow specified conditions. For stock buybacks, the key safe harbor is SEC Rule 10b‑18 (17 C.F.R. § 240.10b‑18), which gives issuers and their affiliates a safe harbor from manipulation liability under the Securities Exchange Act for the manner, timing, price, and volume of their share repurchases—so long as they follow strict daily limits and other conditions.
If the SEC “reconsiders” safe harbors for underperforming defense contractors, it could, via formal rulemaking, narrow or remove Rule 10b‑18 protection for some issuers (for example, by excluding defense firms that fail to meet contract‑performance standards), impose tougher conditions, or require more detailed disclosure around buybacks. Any such change would require proposing rule amendments, taking public comment, and then adopting final rules.
The fact sheet and currently available public materials do not specify precise numerical thresholds or a formal metric for “underperforming.” The fact sheet only describes categories the Secretary of War is to look for, such as contractors that:
• underperform on contracts, • fail to invest their own capital in production capacity, • do not sufficiently prioritize U.S. government contracts, or • maintain inadequate production speed while diverting funds to stock buybacks or corporate distributions.
In existing defense‑acquisition practice, contractor performance is usually evaluated on schedule, cost, quality, and business‑relations criteria through systems like the Contractor Performance Assessment Reporting System (CPARS), but no official link has yet been published tying this Executive Order to specific CPARS scores or other hard thresholds. As of now, the exact metrics remain undefined in public documents.
An “advocacy case” in this context refers to U.S. government commercial advocacy on behalf of a company competing for an overseas government contract, including Foreign Military Sales (FMS) or Direct Commercial Sales (DCS) of defense equipment. The Department of Commerce’s Advocacy Center coordinates such cases, arranging things like high‑level U.S. official support, diplomatic engagement, and backing for a U.S. bidder in a foreign government’s procurement.
Halting or denying advocacy cases for an underperforming defense contractor would mean the U.S. government stops using its diplomatic and political weight to help that firm win foreign defense contracts. This can materially hurt the contractor’s competitiveness abroad, especially in large, government‑to‑government procurements where U.S. government support is often a deciding factor.
The fact sheet indicates that the Executive Order applies differently to existing and future contracts:
• Existing contracts: For firms already under contract, the Secretary of War is directed to identify underperforming contractors and can then seek remedies such as amending the contract, exercising Defense Production Act authorities, or using “other available contract enforcement mechanisms.” Those enforcement tools (e.g., withholding payments, termination for default) already exist under standard federal contracting rules and can be used prospectively to address current underperformance. • Future contracts: The document states that “future contracts” must build in new terms, including prohibitions on stock buybacks and corporate distributions during periods of underperformance, and provisions allowing caps on executive base salaries and performance‑based incentive pay.
Nothing in the fact sheet suggests that the Order would retroactively penalize past, already‑completed stock buybacks or corporate distributions; instead, it focuses on current underperformance and on structuring future contracts to restrict or condition such payouts.
According to the fact sheet, these compensation limits would be implemented mainly through contract terms in future defense contracts, not by directly rewriting corporate law:
• Contract clauses would give the Secretary of War authority, upon determining that a contractor is underperforming or not prioritizing warfighter needs, to cap executive base salaries at their current levels (with adjustments for inflation allowed). • The same contracts would require that executive incentive compensation (bonuses, stock awards, etc.) be “directly, fairly, and tightly tied” to metrics such as on‑time delivery, increased production, and necessary operating improvements, instead of short‑term financial metrics like earnings per share. • Enforcement would occur through normal government‑contract mechanisms: a contractor that violated these compensation clauses could face payment disallowances (the government refusing to reimburse disallowed compensation costs), adverse performance ratings, or other contractual remedies.
Existing federal rules already limit how much executive compensation can be charged to government contracts (making excess compensation “unallowable” for reimbursement), which provides an established model for enforcing pay‑related conditions through contract cost principles.