The Trump administration has issued a new executive order (EO), "Addressing DEI Discrimination By Federal Contractors," targeting federal contractors in a way that builds on earlier efforts to rein in diversity, equity, and inclusion (DEI) practices that violate federal antidiscrimination laws. The EO warns that while the administration believes it "has made significant progress in ending racial discrimination in American society . . . some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so."
The initial January 21, 2025 executive order, "Endling Illegal Discrimination and Restoring Merit-Based Opportunity," broadly challenged DEI policies and required, among other things, that contractors and grantees certify that they do not operate programs promoting DEI in violation of antidiscrimination laws. That order also declared that compliance with the anti-DEI certification was material to the government's payment of invoices under the False Claims Act.
The new EO, dated March 26, 2026, takes the initial policy objectives several steps further for government contractors, with a focus solely on "racially discriminatory DEI activities" in the areas of recruitment, employment, contracting (such as vendor agreements), program participation, and allocation of corporate resources. The EO requires that within 30 days all agencies include a clause in contracts that will be a mandatory flow-down to all lower-tier subcontractors, and that the FAR Council issue a more formal deviation and interim guidance on this clause within 60 days. The clause will require the prime and subcontractors to accept the following conditions:
- Not to engage in racially discriminatory DEI activities
- Produce "all information and reports, including providing access to books, records, and accounts" as required by the contracting agency to ascertain compliance with the clause
- Expressly authorize termination of the contract or subcontract for noncompliance
- Acknowledge that a noncompliant contractor "may be declared ineligible for further Government contracts"
- The prime contractor must report any violations by its subcontractors
- The prime contractor must notify the agency if a subcontractor sues the prime contractor in a way that puts the validity of the clause at issue
- Compliance with the clause is material under the False Claims Act
This means that, as a condition for contracting with the government, contractors must agree to permit the agency to review and audit the contractor's records to determine if it is engaging in racially discriminatory DEI practices. This and other aspects represent a significant expansion of the administration's current approach to DEI and greatly increase enforcement risk by facilitating, through a contract clause, the government's scrutiny of a contractor's DEI policies.
The EO does not leave penalties to the discretion of the contracting officers. It mandates that agencies terminate contracts and debar contractors if they do not comply with all requirements of the new clause. It also directs the Office and Management and Budget to work with the Equal Employment Opportunity Commission to identify specific industries that "pose a particular risk of entities engaging in racially discriminatory DEI activities based on current or past conduct" and issue additional guidance to agencies for more targeted enforcement.
Finally, the EO orders the attorney general to consider whether to bring False Claims Act cases against noncompliant contractors and to make prompt decisions regarding whether to take over False Claims Act cases brought by qui tam whistleblowers.