WSJ: Pentagon puts defence firms on notice over performance failures

The Pentagon has warned defence contractors to prepare for extensive performance reviews that will single out companies deemed to be failing to meet their contractual obligations, according to a message sent to industry executives late last week.

The reviews stem from an executive order signed by President Donald Trump in January, which threatens to cancel contracts held by underperforming defence companies, particularly those that engage in stock buybacks or pay dividends instead of prioritising production and delivery. As part of the order, the Defence Department has already completed initial assessments of contractor performance and is now moving into a more detailed review phase.

“We have completed initial reviews to assess company performance as part of this executive order and will now undergo an extended period of review in which we will make noncompliance determinations,” Michael Duffey, the undersecretary of defence responsible for weapons procurement, wrote in a February 6 email to executives. The message was reviewed by The Wall Street Journal.

Duffey said that once the upcoming decision period concludes, the Pentagon will contact companies identified as falling short in order to begin remediation efforts. “Following the upcoming decision period, we will be in touch with identified companies to begin remediation plans,” he wrote. He also emphasised that the email itself did not constitute a formal determination of noncompliance under the executive order.

Pentagon spokesman Sean Parnell said the directive is already having an impact, noting that contractors have begun improving their performance in response to the administration’s pressure. However, he warned that enforcement actions would follow if progress stalls. “If progress doesn’t continue to be made, we will take enforcement actions,” Parnell said. “The Department of War will partner with those who perform—and hold accountable those who do not.”

Trump has also pushed for limits on executive compensation at defence firms that fail to deliver, a message echoed by Defence Secretary Pete Hegseth during a rally with shipbuilders at General Dynamics’ Bath Iron Works facility in Maine. Hegseth criticised what he described as entrenched industry practices that reward executives despite production delays.

“No more excuses, no more barriers to entry, no more monopolies, no more egregious executive bonuses, no more stock buybacks, no more ridiculous CEO salaries—especially for companies that can’t make things on time,” Hegseth said.

Since the executive order was announced, major defence contractors have been attempting to balance the administration’s demands with shareholder expectations. During quarterly earnings calls late last month, executives from RTX, General Dynamics, and other firms highlighted billions of dollars in capital investments aimed at expanding weapons manufacturing capacity, while also defending their continued dividend payments.

At the same time, the Pentagon has reached agreements with Lockheed Martin and RTX to boost munitions production and has made a $1 billion investment in L3Harris Technologies to accelerate missile manufacturing.

Reflecting on recent engagement between the Defence Department and industry, Duffey acknowledged some progress but signalled that further action would be required. “The engagements and work we’ve done together over the past year is a start,” he wrote in his email. “You have come to the negotiation table, but there’s a lot more work to do.”

By Tamilla Hasanova