On March 26, 2026, President Trump issued a new executive order (EO) titled “Addressing DEI Discrimination by Federal Contractors.” This executive order prohibits federal contractors from engaging in what the administration views as “racially discriminatory DEI activities” and imposes related reporting obligations, as well as penalties that can be assessed against a contractor who violates the requirements of the EO. The EO covers contractors and all tiers of subcontractors doing business with the federal government under the Federal Property and Administrative Services Act (FPASA).
The March 26th EO is the most recent action by the Trump administration in its pursuit to eliminate diversity, equity, and inclusion (DEI) programs and initiatives in the public and private sectors. With respect to efforts specifically targeted at federal contractors, the Trump administration previously rescinded Executive Order 11246 (signed by President Lyndon B. Johnson in 1965), which required federal contractors to engage in certain affirmative actions in the recruitment of women and minorities. The Trump administration also has ordered federal agencies to require that federal contractors certify they do not operate DEI programs that violate federal anti-discrimination laws and has attempted to increase enforcement efforts through its Civil Rights Fraud Initiative, which encourages claims against federal contractors under the False Claims Act (FCA) when such contractors falsely certify compliance with anti-discrimination laws.
Stated Policy and Purpose of the March 26th EO
The stated policy of the March 26th EO is “to promote economy and efficiency in Federal contracting by preventing racial discrimination” which, according to the administration, includes “so-called ‘diversity, equity, and inclusion’ (DEI) activities in which employees, applicants, or contracting parties are treated differently, separated, or singled out based on their race or ethnicity, rather than treated equally and objectively based on their merit and without regard to their immutable characteristics.” The EO states that DEI activities are “not only unethical and often illegal,” but also cause inefficiencies and other costs that ultimately impact the federal government, including “artificial costs in hiring, promotion, and operations by precluding implementation of merit-based principles; creating excessive workforce turnover by elevating immutable characteristics over job performance; and jeopardizing the sort of employee collaboration and problem-solving that is essential to fostering efficient and high-quality work.”
New Requirements for Federal Contractors
The March 26th EO requires all executive agencies to ensure that all new and existing contracts and contract-like instruments, including prime contracts, subcontracts, and lower-tier subcontracts, include a clause that:
- Prohibits Racially Discriminatory DEI Activities — The contractor will not engage in any racially discriminatory DEI activities, defined 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., training, mentoring, leadership development, educational opportunities, clubs, or similar sponsored programs), or allocation or deployment of an entity’s resources.”
- Requires Compliance Reporting and Access — The contractor must furnish all information, reports, books, records, and accounts as required by the contracting agency to verify compliance.
- Requires Flow-Down and Subcontractor Oversight — Contractors must include the clause in their subcontracts and ensure lower-tier subcontractors comply. Contractors also are required to report, and take remedial actions directed by the contracting department or agency to address, “known or reasonably known” conduct that may violate the clause. Contractors must also inform the contracting agency if a subcontractor files suit against the contractor and the suit puts at issue, in any way, the validity of the clause.
- Imposes Remedies for Noncompliance — The contract may be canceled, terminated, or suspended (in whole or in part) in the event of a contractor or subcontractor’s non-compliance. The contractor or subcontractor may also be declared ineligible for further government contracts.
The deadline for executive agencies to comply with the EO is April 25, 2026.
Practical Implications and Next Steps for Federal Contractors
Given the substantial penalties for non-compliance — particularly the potential for contract termination, suspension, and debarment — federal contractors should consider taking steps to ensure compliance with the new mandatory clause, including:
- Review of internal DEI-related programs (trainings, mentoring, employee resource groups, hiring goals, supplier diversity initiatives, etc.) for any race- or ethnicity-based disparate treatment. Many companies are already assessing or scaling back such activities to avoid certification risks, audits, or FCA exposure.
- Contractors should keep in mind that DEI, by itself, is not unlawful, as the EO prohibits “racially discriminatory” DEI activities. That said, contractors should avoid employment practices that treat individuals differently based on any characteristic protected by federal or state anti-discrimination laws.
- Contractors should review their processes and procedures for overseeing subcontractors and ensure there are mechanisms in place for identifying and addressing potential non-compliance.
- Finally, contractors should continue to monitor this area of the law and consult legal counsel for tailored compliance advice, as implementation details (e.g., exact clause language and audit processes) will evolve through agency guidance and rulemaking.
