{"id":6872,"date":"2026-03-08T23:35:12","date_gmt":"2026-03-08T23:35:12","guid":{"rendered":"https:\/\/sawahsolutions.com\/range\/the-pentagons-investment-deals-draw-congressional-scrutiny\/"},"modified":"2026-03-08T23:35:12","modified_gmt":"2026-03-08T23:35:12","slug":"the-pentagons-investment-deals-draw-congressional-scrutiny","status":"publish","type":"post","link":"https:\/\/sawahsolutions.com\/range\/the-pentagons-investment-deals-draw-congressional-scrutiny\/","title":{"rendered":"The Pentagon\u2019s investment deals draw congressional scrutiny"},"content":{"rendered":"
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Lawmakers have questions about the Pentagon\u2019s increased keenness to take partial ownership stakes in companies, demanding details from defense officials while they weigh the need for legislation.\u00a0<\/p>\n

Government equity investment adds pressure on companies to \u201cstimulate growth\u201d and production without \u201cpursuing control,\u201d Michael Duffey, the Pentagon\u2019s top weapons buyer, said Wednesday during a House Armed Services Committee hearing on the defense industrial base. \u201cWe view equity investment as an important tool\u2014amongst a range of tools\u2014that we can apply to build resilience and reduce fragility within the defense industrial base,\u201d Duffey said.\u00a0<\/p>\n

Those other tools include grants and loans, he said, but taking a financial stake in a company has extra benefits, including encouraging companies to put up more of their own funds. Those taxpayer funds can also be returned, unlike grants, which Duffey called a \u201csunk\u201d cost.<\/p>\n

\u201cIt creates a partnership with industry, an opportunity not only for the government to provide capital to lead to the kind of growth that we need, such as in the [L3Harris solid rocket motor] deal, but it also crowds in additional private capital. Part of that deal was for L3 to put their own billions of dollars against what we saw as a very high demand for growth within the solid rocket motor industrial base,\u201d Duffey said.\u00a0<\/p>\n

Earlier this year, the Pentagon announced it would put $1 billion into L3Harris\u2019s solid-rocket-motor\u00a0business to spur production. L3Harris will spend money alongside the government, Duffey said of the deal. The more \u201cskin in the game\u201d vendors have, he said, the more likely they are to increase production capacity.<\/p>\n

\u201cWe haven’t seen the kind of investment that we need in terms of modernizing manufacturing, developing the workforce. We believe [that] equity investment, in some cases\u2014in many cases\u2014in partnership with additional private capital, creates that incentive for better attention to how those dollars are deployed to expand our industry partners\u2019 capability,\u201d Duffey said.\u00a0<\/p>\n

Additionally, each deal \u201ccomes with clear milestones\u201d and timelines to \u201censure that investment is stimulating the growth that is required,\u201d\u00a0 Duffey said. \u201cWe are looking at this as an economic stake in the company. We are not pursuing control.\u201d\u00a0<\/p>\n

Many of the equity investments the Pentagon has made recently relate to critical minerals production. So far, the second Trump administration has invested $2.3 billion on critical minerals supply chain deals since Jan. 20, 2025, buttressed by the Defense Production Act, Duffey testified.\u00a0<\/p>\n

\u201cThe Defense Production Act, DPA, is a key component of this investment strategy. The DPA provides the President with the authority to ensure the availability of industrial resources to meet our national defense requirements,\u201d Duffey said in prepared remarks. \u201cWe have recently used DPA authorities to make significant investments in critical sectors. For instance, we awarded $29.9 million in September 2025 to develop a domestic supply of gallium and scandium, and we have also used DPA authorities to invest $36.6 [million] in late 2025 in germanium production and $43.4 [million] in September 2025 to establish domestic capability for antimony trisulfide, addressing two of the most pressing critical mineral shortfalls facing the defense industrial base today.\u201d<\/p>\n

Duffey also noted that $149 million in DPA Title III funds have gone to eight entities to expand the\u00a0solid-rocket-motor industrial base.\u00a0<\/p>\n

But lawmakers in both chambers, and across party lines, questioned exactly how the Pentagon was going to monitor and execute equity investments.<\/p>\n

\u201cThe department’s making significant equity investments in companies to ramp up their capability to manufacture. Not a new concept. It’s been around, I think, forever,”\u00a0Rep. John Garamendi, D-Calif., said. “How are you monitoring the use of that investment? And ultimately, what will you, will the department be doing with the equity that it has acquired as a result of those investments?\u201d<\/p>\n

In opening remarks, HASC Chairman Mike Rogers, R-Ala., welcomed the Pentagon\u2019s use of new financing tools to strengthen supply chain resilience,\u201d because \u201cthe status quo was not working. However, Congress needs clearer answers on when equity investments are the right approach.\u201d<\/p>\n

During a Feb. 24 hearing on critical minerals supply chains, Senate Armed Services Committee Chairman Roger Wicker, R-Mississippi, praised the Pentagon\u2019s \u201cuse of innovative financial tools,\u201d but noted that \u201clittle law currently exists\u201d with respect to equity investments.<\/p>\n

\u201cI believe these equity-based investments make good strategic sense in many cases, particularly where no free market exists and where we’ve seen aggressive Chinese economic warfare. However, opinions range [widely] between and within our two political parties,\u201d Wicker said in February, adding the committees have been mulling legislation on the matter.\u00a0<\/p>\n

\u201cWhile not public, Ranking Member Reed and I had a long series of discussions with our House counterparts, last year, about legislation regarding equity investments. I anticipate that conversation will continue in earnest this year. This legislation is both important and urgent because rebuilding America’s critical mineral supply chains will take more than a decade.\u201d<\/p>\n

In that same hearing, Sen. Jack Reed, D-R.I., said the Defense Production Act doesn\u2019t explicitly name equity investments.\u00a0<\/p>\n

\u201cI have questions about the legal basis, financial terms and strategic rationale for these transactions. The legal basis, in particular, appears questionable,\u201d Reed said. \u201cThe department has argued that the Defense Production Act provides the authority for these investments. However, while the Defense Production Act does authorize the purchase of industrial resources for government use, it does not mention equity investments at all. The fact that the Trump administration’s Office of Management and Budget has subsequently requested a legislative proposal to explicitly authorize equity investment suggests that the administration, itself, recognizes the current authority is uncertain. And that should give us pause.\u201d<\/p>\n

Michael Cadenazzi, the Pentagon\u2019s head of industrial base policy, fielded those questions and others, saying the deals are designed to provide \u201cperformance outcomes\u201d for companies and that equity stakes will be used as an \u201calternative to other financing mechanisms,\u201d such as direct grants.\u00a0<\/p>\n

Equity investments prove the department\u2019s commitment to \u201csolving these problems, which are outsized relative to our normal focus on it\u201d and \u201cequity is a necessary tool for us to make that commitment,\u201d he said.<\/p>\n

\u201cOur goal is not economic returns. We’re not trying to excise long-term ownership of these companies. The goal is not to have a stake forever. The goal is to achieve our outcome, execute some sort of exit strategy as appropriate to the moment, and then continue on with the next set of problems,\u201d Cadenazzi said. \u201cIdeally, we wouldn’t be spending much time on minerals.<\/p>\n

We feel compelled to do so as a result of the situation in the market.\u201d<\/p>\n

Duffey and Cadenazzi left their hearings with a little homework at lawmakers\u2019 request: submit details of the equity deals and legal justifications, respectively.\n\n<\/svg><\/p>\n<\/div>\n