Executive Order Addresses DEI Discrimination by Federal Contractors

On March 26, 2026, President Donald Trump issued an executive order (EO) titled “Addressing DEI Discrimination by Federal Contractors,” which will require all federal contracts and similar instruments to include a clause prohibiting federal contractors from engaging in racially discriminatory diversity, equity, and inclusion (DEI) activities. The Trump administration also issued a fact sheet regarding the EO.

Overview of the EO

he EO aims to impose new restrictions on federal contractors with respect to racially discriminatory DEI activities. The EO defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation (e.g., membership or participation in, or access or admission to training, mentoring or leadership development programs, educational opportunities, clubs, associations or similar opportunities), or allocation or deployment of the entity’s resources.

Consistent with the administration’s goals, within 30 days of the EO, all federal contracts must include the following clause:

In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

1. The contractor will not engage in any racially discriminatory DEI activities, as defined in section 2 of the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors);
2. The contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;
3. In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further Government contracts;
4. The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;
5. The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and
6. The contractor recognizes that compliance with the requirements of this clause is material to the Government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).

The EO also directs the Federal Acquisition Regulatory Council to amend the Federal Acquisition Regulations to include this clause and remove any conflicting provisions within 60 days of the EO.

Enforcement and Penalties

The EO directs contracting agencies to cancel, terminate, or suspend contracts and to suspend or debar contractors for failure to comply. The EO also orders the Office of Management and Budget to issue guidance to contracting agencies to ensure compliance and identify economic sectors that pose a particular risk of engaging in racially discriminatory DEI activities. Additionally, the attorney general is directed to consult with contracting agencies to consider whether to bring claims under the False Claims Act against contractors or subcontractors that are in violation of the contractual terms prohibiting racially discriminatory DEI activities and ensure the prompt review of related civil actions brought by private persons.

Key Takeaways

Federal contractors and subcontractors should review and update existing contracts to ensure they include the required contractual provision. In addition, while the EO does not alter existing law (which has always banned consideration of an individual’s race in employment decisions), it signals the administration’s focus on combatting racially discriminatory DEI practices. Therefore, federal contractors and subcontractors should also review existing practices to ensure they do not discriminate on the basis of race or ethnicity.