In a recent blog post, Bradley discussed increased False Claims Act (FCA) enforcement by the Department of Justice (DOJ) aimed at curbing diversity, equity and inclusion (DEI) programs in the private sector. Since then, the administration continues to ramp up regulatory pressures on DEI initiatives.
On March 26, 2026, President Trump issued another executive order (EO) on DEI, EO 14398, which directly targets government contract recipients. While this is not the administration’s first foray into restricting contractors’ DEI practices (see EO 14173), this newest EO imposes additional regulatory obligations, raises the specter of exclusion from future government contracts if companies are engaged in prohibited DEI practices, and provides new definitions on prohibited activities.
What Changed — and Why It Matters
The administration previously required government contractors (and grant recipients) “to certify that [they do] not operate any programs promoting DEI[,]” and directed the attorney general to “take all appropriate action” to end DEI “in the private sector[.]” (EO 14173). Now it is expanding the regulatory regime for this emerging enforcement area.
New Enforcement Tools
The new EO gives agencies a powerful tool to investigate compliance with the previously enacted DEI certifications. It directs agencies to add contract provisions requiring companies to allow “access to books, records, and accounts, as required by the contracting agency . . . for purposes of ascertaining compliance[.]” (EO 14398).
With this new provision, individual agencies can readily delve into company records to proactively identify non-compliance. As discussed in our prior blog post, there is a growing emphasis on DEI enforcement by the DOJ. It is ramping up FCA actions against private sector entities it believes are engaged in prohibited DEI practices. Now that agencies will have the ability to audit their contracting partners for compliance, the DOJ will have a new route to initiate these FCA investigations. An agency’s ability to contractually require access to a company’s books and records could allow regulators to access records with increased speed and frequency than under traditional investigative avenues such as civil investigative demands (CIDs).
New Consequences
This new EO also imposes additional consequences for companies that may be out of compliance. While the preexisting business impact of FCA exposure should not be understated, this new EO poses fresh risk. The FCA and DEI certifications from earlier EOs allow the government to seek treble damages for false certifications in current contracts. The newest EO, however, allows the government to exclude non-compliant companies from receiving future government contracts. (EO 14398) (noting that in addition to canceling, terminating, or suspending a contract, in whole or in part, the government may “declare[] [a non-compliant company] ineligible for further Government contracts[.]”). Companies that rely on government contracts as a substantial part of their operations should take note, as the possibility of exclusion for non-compliance may pose an existential threat. Moreover, it applies to non-compliance by contractors and subcontractors.
Added Clarity on What Constitutes Prohibited DEI
The administration’s earlier EOs were fairly vague on what qualifies as prohibited DEI practices. This new EO provides some additional clarity. It 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, or allocation or deployment of an entity’s resources.” While, as with any emerging area of law, the specific confines of prohibited DEI practices will need to be developed through case law, the new EO provides a definition for companies assessing compliance under this rapidly growing regulatory regime.
