On January 7, 2026, the Executive Order (EO) titled “Prioritizing the Warfighter in Defense Contracting” was issued, setting forth several policy priorities relevant to major defense contractors. The EO identifies four areas of focus (see Section 3(a) of EO) that may be reflected in future Department of Defense oversight or contracting actions: (1) reinvestment in production capacity, (2) restrictions on stock buybacks and dividends during periods of contractor underperformance, (3) alignment of executive compensation with delivery and performance metrics, and (4) the timely delivery of capable systems within cost and schedule parameters. The EO directs the Secretary of War to identify contractors supporting critical weapons, supplies, and equipment, and authorizes consideration of enforcement mechanisms and future contract clauses. The specific scope, timing, and application of these authorities remain subject to further clarification and agency action.
Although the EO does not prescribe detailed standards, the Department may leverage existing policy frameworks and historical practice for guidance. Historically, the federal government tends to intervene in circumstances where perceived contractor underinvestment was associated with reduced productivity or readiness concerns. One often‑cited example is the Profit ’76 Study, an initiative through which DoD revised profit policy after concluding that then‑existing incentives did not sufficiently encourage capital investment in productive facilities. Profit ’76 introduced changes intended to reward contractors for committing capital to facilities and equipment that improved productivity, rather than solely compensating for cost and performance risk. This effort contributed to the adoption of Cost Accounting Standard 414 and the related facilities capital cost‑of‑money (FCCOM) construct, which recognizes an imputed cost associated with facilities capital employed on government contracts and is considered in the structured profit analyses under the DFARS weighted guidelines. Of course, other factors may also encourage contractors to reinvest in facilities. Such factors are typically contractor-specific and dependent upon management’s financial and other business objectives.
Separate from the above-described mechanisms, facility renewal and modernization analyses with respect to government-owned facilities have, for several decades, referenced reinvestment rates of approximately 2.5% of plant value per year as a planning benchmark associated with sustaining facility condition. This figure appears in Navy and broader facilities‑engineering literature as an estimate of the annual capital investment required to offset wear, obsolescence, and deferred maintenance within large facility portfolios. It’s important to note this is a Naval Facilities Engineering Systems Command guideline rather than a regulatory requirement.
More recently, Congress has established minimum reinvestment requiring the military departments to budget annual investments equal to specified percentages of plant replacement value, increasing from 1.75% in fiscal year 2027 to 4% by fiscal year 2030 and beyond pursuant to 10 U.S.C. § 2680. While these statutory requirements do not apply directly to contractor‑owned facilities, they reflect a sustained legislative concern that deferred capital investment adversely affects readiness and capacity, and may serve as contextual reference points for agency analysis under the EO.
In anticipation of the DOWs impending assessment of contractor facility reinvestment, contractors may wish to review whether current capital investment levels in facilities and equipment are aligned with longstanding benchmarks used by the government in assessing facility conditions and with Congress’s above-noted recent direction regarding facility reinvestment criteria. Assessment of contractor FCCOM rates and profit in comparison to the DFARS weighted guidelines “facilities capital employed” may also be helpful. Chess has decades of experience assisting contractors with preparation for new and anticipated directives/regulations. Contact us if you need assistance or have any questions.