5 Steps for Defense GovCons to Respond to the Warfighter Executive Order

On January 7, 2026, the "Prioritizing the Warfighter in Defense Contracting” Executive Order (EO) created new guidelines for defense contractors, with the intent of targeting those that are not investing capital in production capacity, not sufficiently prioritizing government contracts or not operating at a rapid enough production speed.

Ultimately, the order reflects that the Department of Defense (DoD, also referred to as the Department of War, or (DoW) aims to incentivize defense contractors to prioritize speed and production, preferring warfighter readiness to investor returns. It’s a major shift that signals a new era for Defense contractors.

In this blog, we’ll explain some of the background leading up to the “Prioritizing the Warfighter in Defense Contracting” Executive Order, highlight some of its key components, and share five steps for government contractors to take as they adapt to the new priorities from the Department of Defense.

Department of Defense: Background & Context

Deltek’s Federal Market Analysis team had, months ago, identified Defense Reform as one of the key Federal Contracting Trends to Watch in 2026.

Those federal contractors working with Defense operate in a complex market where defense and intelligence sectors are positioned to experience robust growth (with an $831B+ defense budget in the last federal fiscal year) while many civilian agencies are facing contraction.

On top of this, in November 2025, the DoD released their Defense Acquisition Transformation Strategy. The strategy prioritized accelerating the fielding of commercial technologies and modernized systems, increasing production capacity for capabilities, systems, weapons and munitions; and putting the acquisition system and the industrial base on a wartime footing that accepts greater risk.

Key Provisions from the “Prioritizing the Warfighter” Executive Order

The January executive order establishes guidelines to hold defense contractors “to the highest standards intended to ensure the advancement of core national interests, including with respect to the timeliness and quality of the defense items that they deliver.” It includes guidance on steps the Secretary of Defense can take to identify contractors that are not meeting these standards, create remediation plans, and enforce penalties or punishments if necessary.

Identification

The Secretary of Defense must identify contractors for critical weapons, supplies, and equipment that are:

• Underperforming on contracts
• Not investing capital into production capacity
• Not sufficiently prioritizing government contracts
• Producing at insufficient speed

Remediation

The Secretary will provide such contractors with notice and engage with contractors to submit a remediation plan. The plan must be:

• Board-approved
• Submitted within 15 days of notice (or, potentially, the contractor must be engaged with the Secretary of War to resolve performance issues)

Enforcement

If the remediation plan is insufficient, or the department and the contractor are unable to resolve underperformance issues within the 15-day negotiation period, DoD can pursue remedies to return the contractor to sufficient performance, including:

• Contract amendments
• Defense Production Act authorities
• Voluntary agreements
• Other available contract enforcement mechanisms

You can go deeper into details from the EO in this informative article, which gives you insights into the impacts on future contract requirements, enforcement mechanisms and much more.

The Big Picture for Defense Contractors

This EO puts defense contractors who are deemed to be underperforming on notice. The order prohibits defense contractors from conducting stock buybacks or paying dividends until they can "produce a superior product, on time and on budget." This is effective immediately and applies broadly to underperforming contractors – and seems likely to face major legal pushback, which is worth watching closely.

What is not up for debate is that this is a major shift in the way defense contractors are evaluated. If your firm is uncertain about its ability to improve and speed up its production capabilities, or perform to the standards of the federal government, you may benefit from a project-focused solution that can help identify areas that need improvement and show evidence that your firm is meeting the government’s new standards.

What Defense Contractors Need to Do Now

1. Assess whether your firm, your partnerships or your teaming relationships are at risk or involve contractors at risk. Time is of the essence, as the 30-60 day implementation timelines in the EO mean that initial impacts will emerge by February or March of 2026.
2. Pay close attention to further market developments and potential legal challenges related to this EO. Additionally, the final FY 2026 discretionary budget will provide more clarity on how the administration plans to carry out their spending and acquisition agenda.
3. Track changes to your target contract vehicles to identify new performance-based compensation clauses. If your contracting business doesn’t currently have a system that makes it easy to find and track best-fit contracts, you may want to consider one.
4. Evaluate your firm’s competitive positioning if major incumbents on contract vehicles face operational or financial constraints. If you can understand where incumbents are struggling and are able to use your own reliability and performance as a competitive advantage, you’ll have a major step up on the competition.
5. Review your own internal metrics and how they align with the new DoD priorities. Are you able to ensure that your team will deliver its products or services on time? Do you have the production capacity and investment levels to keep your firm from being flagged?

The “Prioritizing the Warfighter in Defense Contracting” Executive Order has created a new environment where contractors must make informed strategic business development decisions and demonstrate their performance across pricing discipline, financial management, program execution, workforce optimization, and compensation alignment vectors – all at the same time. Contractors should follow the steps listed above and ensure that they have an end-to-end solution for their entire government contracting business, that helps them meet federal requirements and position them for future growth.