Lawmakers have questions about the Pentagon’s increased keenness to take partial ownership stakes in companies, demanding details from defense officials while they weigh the need for legislation.
Government equity investment adds pressure on companies to “stimulate growth” and production without “pursuing control,” Michael Duffey, the Pentagon’s top weapons buyer, said Wednesday during a House Armed Services Committee hearing on the defense industrial base. “We view equity investment as an important tool—amongst a range of tools—that we can apply to build resilience and reduce fragility within the defense industrial base,” Duffey said.
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 “sunk” cost.
“It 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,” Duffey said.
Earlier this year, the Pentagon announced it would put $1 billion into L3Harris’s solid-rocket-motor business to spur production. L3Harris will spend money alongside the government, Duffey said of the deal. The more “skin in the game” vendors have, he said, the more likely they are to increase production capacity.
“We 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—in many cases—in partnership with additional private capital, creates that incentive for better attention to how those dollars are deployed to expand our industry partners’ capability,” Duffey said.
Additionally, each deal “comes with clear milestones” and timelines to “ensure that investment is stimulating the growth that is required,” Duffey said. “We are looking at this as an economic stake in the company. We are not pursuing control.”
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.
“The 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,” Duffey said in prepared remarks. “We 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.”
Duffey also noted that $149 million in DPA Title III funds have gone to eight entities to expand the solid-rocket-motor industrial base.
But lawmakers in both chambers, and across party lines, questioned exactly how the Pentagon was going to monitor and execute equity investments.
“The 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,” Rep. 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?”
In opening remarks, HASC Chairman Mike Rogers, R-Ala., welcomed the Pentagon’s use of new financing tools to strengthen supply chain resilience,” because “the status quo was not working. However, Congress needs clearer answers on when equity investments are the right approach.”
During a Feb. 24 hearing on critical minerals supply chains, Senate Armed Services Committee Chairman Roger Wicker, R-Mississippi, praised the Pentagon’s “use of innovative financial tools,” but noted that “little law currently exists” with respect to equity investments.
“I 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,” Wicker said in February, adding the committees have been mulling legislation on the matter.
“While 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.”
In that same hearing, Sen. Jack Reed, D-R.I., said the Defense Production Act doesn’t explicitly name equity investments.
“I have questions about the legal basis, financial terms and strategic rationale for these transactions. The legal basis, in particular, appears questionable,” Reed said. “The 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.”
Michael Cadenazzi, the Pentagon’s head of industrial base policy, fielded those questions and others, saying the deals are designed to provide “performance outcomes” for companies and that equity stakes will be used as an “alternative to other financing mechanisms,” such as direct grants.
Equity investments prove the department’s commitment to “solving these problems, which are outsized relative to our normal focus on it” and “equity is a necessary tool for us to make that commitment,” he said.
“Our 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,” Cadenazzi said. “Ideally, we wouldn’t be spending much time on minerals.
We feel compelled to do so as a result of the situation in the market.”
Duffey and Cadenazzi left their hearings with a little homework at lawmakers’ request: submit details of the equity deals and legal justifications, respectively.
