Executive Order Imposes DEI-Related Contract Requirements on Federal Contractors
President Trump's recent executive order ("EO") targets diversity, equity, and inclusion ("DEI") practices of federal contractors by introducing timelines and language for DEI certifications, threatening termination of contracts for noncompliance, and seeking to encourage False Claims Act ("FCA") actions.
On March 26, 2026, President Trump signed an EO, "Addressing DEI Discrimination by Federal Contractors," which represents an escalation in the administration's efforts to combat allegedly unlawful DEI. While a prior executive action directed agencies to require certifications of compliance with "all applicable Federal anti-discrimination laws," this EO sets specific language and timelines for the certifications and establishes an obligation to furnish wide-ranging books and records access to identify violations.
The Mandatory Clause
Within 30 days, agencies must ensure that contracts and subcontracts include a new clause prohibiting "racially discriminatory DEI activities," defined as "disparate treatment based on race or ethnicity in" recruiting; employment; contracting; participation in certain mentoring, training, and development programs; or the "allocation or deployment of an entity's resources." Notably, the EO focuses exclusively on race and ethnicity, not on sex or other protected characteristics.
The new clause requires contractors to agree to: (i) not engage in disparate treatment based on race or ethnicity in employment or contracting; (ii) furnish records to the contracting agency demonstrating compliance; (iii) recognize that noncompliance may result in contract termination or debarment; (iv) report known or reasonably knowable subcontractor noncompliance; (v) notify the contracting agency if any subcontractor lawsuit puts the validity of the clause at issue; and (vi) recognize that compliance is material to the government's payment decisions for purposes of the FCA.
Enforcement
The EO also signals increased scrutiny of DEI-related compliance, directing agencies to terminate contracts and suspend or debar noncompliant contractors. The EO and the accompanying White House Fact Sheet specifically direct the attorney general to "prioritize" bringing FCA claims.
Practical Steps
In light of the EO, federal contractors should:
- Conduct privileged audits of employment and contracting practices;
- Evaluate oversight of subcontractors and subcontract flow-downs;
- Assess records and policies to prepare for agency information requests; and
- Monitor implementation guidance, Federal Acquisition Regulation amendments, and potential legal challenges.
