Federal grantees may have taken note that a new executive order (E.O.), "Addressing DEI Discrimination by Federal Contractors," has been issued, calling for a new clause in federal procurement contracts that will impose new restrictions on diversity, equity, and inclusion (DEI) activities.
Specifically, on March 26, citing authority under the Federal Property and Administrative Services Act (FPASA), 40 U.S.C. 101 et seq., the president called upon the Federal Acquisition Regulation (FAR) Council to implement a new clause for inclusion in federal contracts that would prohibit contractors from engaging in "racially discriminatory DEI activities." The clause is to be designed such that it is flowed down by prime contractors to subcontractors.
Venable LLP issued a client alert on March 27 discussing implications for federal contractors that may be accessed here.
As federal grantees are well aware, similar provisions were directed approximately a year ago by E.O.s 14151 and 14173 for federal financial assistance awards, i.e., grants and cooperative agreements, and GSA is currently reviewing comments to consider the addition of a certification to be included for recipients of federal financial assistance of our previous article on SAM.gov. Although not directly impacted by this new E.O. (unless grant recipients are also performing federal procurement contracts), the mandated clause contains several features that will further inform grantees in this evolving area, including but not limited to the following:
- First, it prohibits any "racially discriminatory DEI activities," not merely activities that violate federal anti-discrimination laws as was directed for grantees by E.O. 14173. It is possible that this varied scope results from the fact that federal procurement contractors are not subject to the same direct anti-discrimination legal obligations that apply to financial assistance recipients, in particular for all grantees under Title VI of the Civil Rights Act of 1964 and further for education programs under Title IX of the Education Amendments Act of 1972. Regardless of the reason, the scope of prohibited DEI activities applied in the new E.O. for contractors is notably broad, including "disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity's resources."
- Second, like E.O. 14173, it asserts that compliance with the restriction is a material term of payment for purposes of potential liability under the Civil False Claims Act, 31 U.S.C. § 3729 et seq.
- Third, it calls for mandatory reporting of "any subcontractor's known or reasonably knowable conduct that may violate this clause to the contracting department or agency."
- Fourth, its prohibitions appear to be limited to activities within the scope of performance of the contractor's procurement contracts, which is likely narrower than the reach of E.O. 14173 for grantees.
- Finally, it removes the discretion of contracting officers for determining penalties for noncompliance with the new clause. In fact, it mandates that agencies terminate contracts and "take appropriate action to suspend and debar contractors or subcontractors" if they do not comply.
Although in some ways broader and in other ways narrower, this clause seems intended primarily to fill a gap that otherwise existed in the current administration's efforts to impose DEI prohibitions throughout the federal funding system. This E.O. and the pending updates to SAM.gov financial assistance assurances on which we issued a client alert in February are useful indications of continued trends in federal funding, with continuing developments expected throughout 2026.
For questions related to federal award compliance, contact Venable attorneys Dismas Locaria, Scott S. Sheffler, and Chris Griesedieck. For more information on Venable's Government Grants Practice in general, feel free to visit our web page.