US DoW (Department of War) establishes new acquisition model to more than triple PAC-3 MSE production in partnership with Lockheed Martin.
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Pentagon Press Release, Arlington VA, 06 January 2026: The Department of War (DoW), working in partnership with Lockheed Martin, today announced the signing of a landmark framework agreement that establishes a transformative new acquisition model to expand munitions production and procurement—one that delivers long-term demand certainty, incentivizing industrial investment to increase production, cut lead times, drive supply chain management efficiencies, while reducing upfront government facilitization and capacity investments.
This seven-year framework agreement with Lockheed Martin is a direct outcome of the Department’s new Acquisition Transformation Strategy, as unveiled by Secretary of War Pete Hegseth in his Arsenal of Freedom speech at Fort McNair in November. As the Secretary stated, “We will stabilise demand signals. We will award companies bigger, longer contracts for proven systems so those companies will be confident in investing more to grow the industrial base that supplies our weapons systems more and faster.”
Under the framework agreement, Lockheed Martin will increase annual production of the PAC-3 Missile Segment Enhancement (MSE) interceptor from approximately 600 to 2,000, aligning industrial capacity to the long-term demand required by US forces, allies and partner nations. The agreement also aligns the interests of Lockheed Martin, the government, and taxpayers, with Lockheed Martin supporting investments to scale the required production increases, while benefitting from the certainty of long-term, growing demand for the PAC-3 MSE.
“This framework agreement marks a fundamental shift in how we rapidly expand munitions production and magazine depth, and how we collaborate with our industry partners,” said Michael Duffey, Under Secretary of War for Acquisition and Sustainment. “Lockheed Martin’s willingness to help pioneer this transformative acquisition model is a win-win for the taxpayer, our national security, and the rebuilding of the industrial base needed for the Arsenal of Freedom.”
The framework agreement establishes the basis for negotiating a seven-year supply contract, subject to Congressional authorisation and appropriations, that would increase PAC-3 MSE production to approximately 2,000 missiles per year, up from approximately 600 today. The agreement also provides for strict delivery accountability and allows both the Department of War and Lockheed Martin to share in any enhanced profitability resulting from new equipment and volume efficiencies. This facilitization strategy will be applied to multiple munitions procurement contracts over the next year, pending Congressional appropriations, to replenish our stockpiles, rebuild our military, re-establish deterrence and strengthen and grow our defence industrial base.
The Department of War recognises that supply chain facilitization is also required to support production capacity increases. As part of the framework agreement, the DoW will work with key suppliers of PAC-3 MSE to deliver seven-year subcontracts to ensure facilitization investments and the production capacity of components also expand to meet the increased demand for all-up-rounds.
The PAC-3 MSE framework agreement advances the Department’s acquisition transformation priorities and reflects the execution-focused work of the Department’s Munitions Acceleration Council, as well as the strong partnership with Lockheed Martin. The Council was established to rapidly identify and remove structural barriers to scaling weapons production and to translate urgent operational demand into executable, long-term industrial capacity.
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Lockheed Martin News Release, Dallas, 06 January 2026: Lockheed Martin signed a landmark framework agreement with the US Department of War to rapidly accelerate the production and delivery of PAC-3® Missile Segment Enhancement (MSE) interceptors. This transformative partnership, designed to deliver sustained production at scale, will increase annual capacity from approximately 600 to 2,000 in a seven-year agreement, supporting US forces, allies and partner nations.
Today’s landmark agreement is a direct outcome of the Department of War’s new Acquisition Transformation Strategy and will more than triple production capacity to meet the needs of America and partner nations.
THE BIG PICTURE
- Acquisition Transformation: This agreement is a direct outcome of the Department of War’s Acquisition Transformation Strategy, one of the most significant reforms to US warfighting acquisition in decades. The framework introduces a new model that provides long-term demand certainty, enabling industry investment, increasing production rates and driving operational efficiencies. It incorporates a collaborative financing approach designed to preserve initial cash neutrality, allowing industry to invest confidently to meet required production levels. The agreement reflects years of collaboration to modernise acquisition and deliver critical capability at the speed and scale required by today’s security environment.
- Timeline: The seven-year agreement increases capacity for PAC-3 MSE to approximately 2,000. Lockheed Martin is well-positioned to fulfil this agreement, having recently increased PAC-3 MSE production by more than 60% over the past two years. In 2025, Lockheed Martin delivered 620 PAC-3 MSEs, exceeding the previous year by more than 20%.
- Investing for the future: Lockheed Martin will support necessary investments to drive the production increase, and both the Department of War and Lockheed Martin will participate in the cost savings opportunity enabled by long-term demand certainty for PAC-3 MSE interceptors.
WHY IT MATTERS
Following recent real-world operations, global demand for PAC-3 MSEs continues to soar. This agreement will more than triple production capacity to meet the needs of US forces, allies and partner nations. As a result, the PAC-3 programme will add thousands of additional American jobs across the supply chain. Beyond increased output, the agreement strengthens the resilience and anti-fragility of the US defence industrial base by enabling long-term supplier investment, predictable demand signals and sustained production.
In 2025 alone, more than 24,000 Missiles and Fire Control products were delivered to America and its allies.
EXPERT PERSPECTIVE
“We appreciate the Department of War’s leadership in advancing acquisition reform,” said Lockheed Martin Chairman, President and CEO Jim Taiclet. “This first-of-its-kind approach builds on years of advocacy and collaboration to bring commercial practices to major acquisition programmes. We will create unprecedented capacity for PAC-3 MSE production, delivering at the speed our nation and allies demand while providing value for taxpayers and our shareholders.”
ADDITIONAL CONTEXT
- Lockheed Martin will continue to work with the US government toward an initial contract award, expected in final fiscal year 2026 Congressional appropriations.
