On March 26, President Trump issued a new Executive Order (EO), Addressing DEI Discrimination by Federal Contractors, that seeks to prohibit federal contractors and subcontractors from engaging in what the EO defines as “racially discriminatory DEI [diversity, equity and inclusion] activities.”
The EO directs agencies to incorporate a new contractual clause into prime contracts and subcontracts, requires contractors to provide compliance-related information upon request, and contemplates consequences for noncompliance, including termination, suspension, debarment, and potential False Claims Act (FCA) violations.
The EO is likely to have significant implications for companies that do business with the federal government, particularly those with programs that take race or ethnicity into account. Although additional implementation guidance is still unclear, contractors should begin evaluating their existing policies and compliance frameworks now.
What the Executive Order Does
The EO states that it is intended to promote economy and efficiency in federal contracting under the Federal Property and Administrative Services Act (FPASA) by preventing racial discrimination in contractor operations. By grounding the EO in FPASA and portraying DEI activities as drivers of cost and inefficiency, the administration appears to be positioning the measure as a procurement-focused economy and efficiency directive, rather than solely as an anti-discrimination policy, likely in an attempt to withstand future legal challenge.
It broadly defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or the allocation or deployment of resources. It also broadly defines “program participation” to include membership or participation in, or access or admission to, training, mentoring, leadership development programs, educational opportunities, clubs, associations, or similar opportunities that are sponsored or established by the contractor or subcontractor.
Most notably, the EO directs executive departments and agencies, within 30 days, to ensure that contracts and contract-like instruments, including subcontracts and lower-tier subcontracts, include a clause under which the contractor agrees that it will not engage in racially discriminatory DEI activities. That clause will also require contractors to furnish information and reports; provide access to books, records, and accounts as requested by the agency; report known or reasonably knowable subcontractor conduct that may violate the clause; and notify the agency if litigation with a subcontractor places the clause’s validity at issue. The clause further states that compliance is material to the government’s payment decisions for purposes of the FCA.
Enforcement Mechanisms
The EO contemplates potentially aggressive enforcement. It directs the Office of Management and Budget (OMB) to issue guidance to contracting agencies, and it instructs agencies, consistent with that guidance, to cancel, terminate, or suspend contracts for noncompliance and to take appropriate suspension and debarment action against contractors or subcontractors that fail to comply. The EO also directs OMB, in coordination with the Attorney General, Domestic Policy leadership, and the Equal Employment Opportunity Commission (EEOC) chair, to identify sectors viewed as presenting a heightened risk of engaging in the covered conduct and to issue sector-specific best practices.
The Department of Justice has been given a specific role as well. The Attorney General is directed to consider whether to bring FCA cases against contractors or subcontractors that violate the required clause and to ensure prompt review of qui tam suits involving federal contracts or subcontracts. In parallel, the Federal Acquisition Regulatory (FAR) Council is directed to amend the FAR to include the new clause in covered solicitations and contracts and to remove conflicting provisions. Before those FAR amendments are completed, the FAR Council is directed to issue deviation and interim guidance under FAR Subpart 1.4.
Implementation Timeline
March 26, 2026: President Trump signed the EO Addressing DEI Discrimination by Federal Contractors.
By April 25, 2026: Within 30 days of the EO, executive departments and agencies must ensure that covered contracts, contract-like instruments, subcontracts, and lower-tier subcontracts include the new clause prohibiting racially discriminatory DEI activities.
By May 25, 2026: Within 60 days of the EO, the FAR Council must issue deviation and interim guidance under FAR Subpart 1.4 regarding agency implementation of the clause before full FAR amendments are completed.
By July 24, 2026: Within 120 days of the EO, each agency head must review the agency’s implementation of the EO and report on compliance to the assistant to the president for domestic policy.
Ongoing: OMB to issue guidance to contracting agencies, agencies are directed to pursue enforcement measures where appropriate, and the Attorney General is directed to consider potential FCA enforcement and ensure prompt review of related qui tam actions involving federal contracts and subcontracts.
Why This Matters for Federal Contractors
This EO is designed to embed compliance obligations directly into federal contracts and then tie those obligations to traditional procurement remedies as well as potential FCA exposure. Contractors may face not only performance and responsibility consequences, but also increased risk that certifications, invoices, or other payment-related submissions could be scrutinized if the government views the contractor as noncompliant with the clause.
The EO’s definitions of covered conduct reach not only hiring and promotion, but also vendor relationships, access to training and mentoring, leadership-development programs, and other internal opportunities. For companies with established inclusion initiatives or targeted development programs, the immediate challenge will be determining which activities could be characterized by the government as involving prohibited disparate treatment based on race or ethnicity.
The subcontract flowdown requirement is another notable feature. Prime contractors will be expected not only to include the clause downstream, but also to report subcontractor conduct that is “known or reasonably knowable” and to take remedial actions directed by the agency. That language may place added pressure on prime contractors to ensure subcontractor diligence, update subcontract terms, and create escalation procedures for issues that could implicate the new clause.
Practical Steps for Contractors to Consider Now
Federal contractors and subcontractors should consider taking several near-term steps:
Review DEI Programs: First, review DEI-related policies, training, mentorship, internship, leadership-development, recruiting, and supplier-diversity programs to identify any elements that could be viewed as providing differential treatment based on race or ethnicity.
Assess Contract Management Systems: Second, assess contract management and compliance systems to prepare for new representations, clause flowdowns, information requests, and record-keeping and document-access obligations. The EO expressly contemplates agency access to books, records, and accounts for compliance purposes.
Evaluate Subcontract Templates: Third, evaluate subcontract templates since the required clause extends to subcontracts. Companies should be prepared to revise flowdown language and consider how potential concerns will be investigated, documented, and reported.
Coordinate Across Internal Teams: Fourth, coordinate among legal, compliance, HR, procurement, ethics, and contracts personnel. Many of the programs that are potentially implicated by the EO sit outside traditional government contracts teams, which increases the risk of inconsistent interpretation or responses if implementation is handled across various teams. This point is especially important given the EO’s express linkage to payment materiality and the potential for FCA scrutiny.
Review SAM.gov Reps & Certs: Fifth, in light of the General Services Administration’s modernized Reps & Certs rollout on March 24, ensure that personnel who are responsible for registrations, annual updates, and award-related certifications understand the new structure. With the implementation of the EO, contractors should be prepared to identify where these future FAR- or agency-driven compliance changes may appear in the system.
Looking Ahead: What Federal Contractors Should Expect
Several important implementation questions remain open. The EO states that agencies must act “to the extent permitted by law,” and it directs the FAR Council to remove conflicting provisions, but it does not itself resolve how agencies will interpret the clause in practice, how it will interact with existing equal employment and civil rights requirements, what evidence agencies will expect in reviews or investigations, or which sectors OMB may identify as higher risk. Those details will likely shape both the scope of compliance obligations and the practical enforcement posture.
Contractors also should expect potential legal challenges. Because the EO relies on FPASA and reaches deeply into contractor employment, training, and business-practice decisions, affected parties may test its limits in litigation. Even so, contractors should not assume that uncertainty will delay enforcement, particularly given the EO’s direction for agency clause implementation within 30 days and interim FAR guidance within 60 days.
The EO is part of the administration’s broader effort to eliminate what it describes as unlawful DEI-related practices, but this EO is especially significant because it is aimed directly at the federal contractor community and pairs policy restrictions with powerful procurement and enforcement tools. Contractors should watch closely for OMB guidance, FAR deviations, and agency-specific implementation steps over the coming weeks. In the meantime, businesses that receive federal funds through federal contracts should begin evaluating whether existing practices could trigger scrutiny under the new framework.Please contact the author if you have an