New Executive Order on DEI discrimination by federal contractors: Key considerations

On March 26, 2026, President Donald Trump signed an Executive Order (EO) titled, “Addressing DEI Discrimination by Federal Contractors,” which requires federal agencies to include a clause in all contracts prohibiting contractors and subcontractors from engaging in racially discriminatory diversity, equity, and inclusion (DEI)-related activities. 

The EO differs from prior policy directives by requiring agencies to add a specific contract clause within 30 days of the Order’s signing and by directing similar changes to the Federal Acquisition Regulation (FAR) through regulatory amendments and class deviations. In addition, the clause makes compliance subject to False Claims Act (FCA) liability.  

An accompanying fact sheet outlines the Trump Administration's rationale and the specific actions federal agencies are directed to take under the new EO. 

This alert summarizes the key provisions of the new EO, explains how it relates to earlier actions and the United States Department of Justice (DOJ)’s evolving enforcement posture, and discusses considerations for federal contractors navigating the developing compliance landscape.

Background

The new EO is the latest in a series of executive actions addressing DEI in the federal contracting space. In January 2025, President Trump signed EO 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which revoked the longstanding EO 11246, “Equal Employment Opportunity,” and its associated affirmative action framework for federal contractors. Since that time, employers have sought guidance on what types of DEI-related policies could raise legal risk, how the federal government may approach monitoring and enforcement of its directives, and what the revocation of EO 11246 could mean for workforce data that federal contractors historically gathered and reviewed. 

During this period, the DOJ has emerged as a primary enforcement authority in the Trump Administration’s approach to civil rights compliance. In May 2025, the DOJ announced its Civil Rights Fraud Initiative, co-led by the Civil Fraud Section and the Civil Rights Division, to “utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” 

At the Federal Bar Association's Qui Tam Conference in February 2026, Deputy Assistant Attorney General Brenna Jenny, who leads the Commercial Litigation Branch in the DOJ's Civil Division, discussed the Administration’s potential use of the FCA in connection with alleged violations of anti-discrimination laws. 

Jenny noted that using the FCA to pursue violations of anti-discrimination law represents a new application, and that her office is prioritizing anti-discrimination FCA cases for expedited review. According to Jenny, some FCA matters currently under DOJ review have been initiated by qui tam relators (i.e., individual whistleblowers), and the DOJ is reviewing matters involving companies across a range of industries, including automotive, defense, pharmaceuticals, technology, telecommunications, and utilities. 

Because Jenny’s remarks were made in the weeks leading up to the issuance of the new EO, they may provide context for understanding how the new EO’s contractual requirements and FCA related provisions may be implemented in practice.

Key provisions of the new EO

I. Definition of “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, or allocation or deployment of an entity's resources.” 

The Order further defines “program participation” to include “membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.” 

The definition extends beyond traditional employment decisions to encompass vendor relationships, resource allocation, and access to internal development programs.

II. Mandatory contract clause

The EO directs all federal agencies to ensure, within 30 days of its signing (i.e., by April 25, 2026), that federal contracts and contract-like instruments – including subcontracts at every tier – each include a clause imposing six specific obligations:

1. The contractor must agree not to engage in any racially discriminatory DEI activities as defined in the EO. 
   
   
2. The contractor must furnish all information and reports requested by the contracting agency for purposes of ascertaining compliance, including providing access to books, records, and accounts. 
   
   
3. The contract may be canceled, terminated, or suspended for non-compliance, and the contractor may be declared ineligible for future government contracts. 
   
   
4. The contractor must report any subcontractor conduct that may violate the clause to the contracting agency and take any remedial actions directed by the agency. 
   
   
5. The contractor must inform the contracting agency if a subcontractor files suit against the contractor that puts the validity of the clause at issue. 
   
   
6. The contractor must acknowledge that compliance with the clause is “material to the Government's payment decisions” under the FCA (31 U.S.C. § 3729(b)(4)).

III. Enforcement and penalties

The EO establishes an enforcement framework involving multiple agencies. The Office of Management and Budget (OMB) is directed to issue compliance guidance to contracting agencies. Contracting agencies are further directed to cancel, terminate, or suspend contracts for non-compliance and take appropriate action to suspend or debar non-compliant contractors and subcontractors.

OMB, in coordination with the Attorney General, the Assistant to the President for Domestic Policy, and the Chairman of the Equal Employment Opportunity Commission, is directed to 1) identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities based on current or past conduct and 2) issue additional sector-specific compliance guidance. As a result, certain industries may be subject to heightened scrutiny and additional compliance obligations.

The Attorney General is directed to consider whether to bring FCA actions against contractors or subcontractors that violate the mandatory clause, and to ensure prompt review of qui tam actions filed by private citizens – including by rendering a decision on whether to proceed with such actions, to the maximum extent practicable, within the 60-day period prescribed by statute. 

Each agency head must review implementation of the contract clause requirement within 120 days and report to the Assistant to the President for Domestic Policy on compliance. Thereafter, agency heads are required to regularly review and take appropriate measures to ensure continued compliance.

IV. Implementation timeline

The EO establishes the following key implementation deadlines:

• Within 30 days (April 25, 2026): Federal agencies are to include the clause prohibiting racially discriminatory DEI activities in contracts and contract-like instruments and ensure that the clause flows down to subcontractors.
  
  
• Within 60 days (May 25, 2026): The FAR Council must issue deviation and interim guidance regarding agency implementation of the clause while implementing longer-term amendments to the FAR.
  
  
• Within 120 days (July 24, 2026): Each agency head must review implementation of the clause and report on compliance.

In addition, the FAR Council is directed to amend the FAR to formally incorporate the mandatory clause and remove any conflicting provisions. There is no specific deadline for that rulemaking.

Contractor policies that could raise legal risk

Separate from the EO’s specific contractual requirements, DOJ enforcement statements provide additional context regarding the types of practices that could draw scrutiny. Based on Jenny’s remarks earlier this year, certain categories of DEI-related practices may raise questions under existing federal anti-discrimination laws. The examples she discussed include: 

• Establishing and tracking demographic objectives related to hiring or promotion into specific roles, particularly where such goals are not tied to Office of Federal Contract Compliance Programs (OFCCP) underutilization analyses (e.g., a statistical assessment that determines whether women and minorities are represented in an employer's workforce at rates lower than their availability in the relevant labor market)
  
  
• Linking employee compensation or incentives to meeting established demographic targets created by the company
  
  
• Requiring employees to develop individual diversity-related goals and tying compensation or incentives to meeting those goals

Jenny also shared examples of activities that, according to her remarks, may warrant DOJ review, including the use of diverse-slate policies in hiring that result in lowered qualification requirements for candidates in a particular demographic group, as well as executive training and mentoring programs limited to a single demographic group – particularly where such programs provide proximity to higher-level decision makers or other benefits. As she noted, a “nexus to promotion” may raise questions about legality.

Jenny emphasized that the existence of DEI programs or policies does not necessarily indicate a violation of anti-discrimination laws. Similarly, she noted that an employer can face potential exposure under those laws without having formal DEI programs or policies in place. 

FCA risk and enforcement 

As discussed above, the new EO requires contractors to acknowledge in writing that compliance with the clause is “material to the Government's payment decisions” under the FCA. This provision addresses the materiality element that the government might otherwise need to prove independently in FCA enforcement actions. 

Under the FCA, a federal contractor or grantee that knowingly submits – or causes the submission of – false claims to the government for payment is liable for three times the government's damages, plus penalties and costs. The FCA also permits private citizens to file qui tam suits on behalf of the government. As indicated in Jenny’s February 2026 remarks, whistleblower reports were already serving as a trigger for investigations into companies' DEI-related practices; the new EO now further directs the Attorney General to ensure “prompt review” of such actions.

While not mentioned in the EO, data may continue to play a role in these cases. Jenny’s remarks earlier this year highlighted a relationship between the increase in FCA cases and the availability of data reviewed by the DOJ and potential whistleblowers. According to Jenny, data that may be used in connection with FCA claims against contractors includes data from publicly available government reporting as well as diversity-related metrics that companies published on websites or in public annual reports.

The DOJ has outlined three potential approaches to calculating damages in FCA cases arising from anti-discrimination violations: 

• Full contract value: The DOJ may argue it would not have contracted with that company if it had known of the alleged discrimination; damages may constitute the full value of the contract.
  
  
• Program costs: If the company used federal funds to design or administer DEI programs or policies that are alleged to violate anti-discrimination laws, the funds expended on those programs may be cited as a measure of damages. 
  
  
• Hybrid approach: A blended approach may consider the nature of the contracts and their relation to the alleged discrimination. 

The DOJ has indicated it will seek penalties in addition to damages in civil fraud discrimination cases to advance deterrence. In evaluating the application of damages multipliers, the DOJ will consider five factors: 1) the defendant's cooperation, 2) the extent of self-disclosure, 3) the duration and scope of the alleged misconduct, 4) whether senior leadership was involved, and 5) the extent of the defendant's commitment to remediation. 

Considerations for federal contractors

In light of the new EO and the Administration's broader enforcement posture, federal contractors may wish to consider: 

• Reviewing employment policies. Regular audits of employment policies and practices can help companies assess potential exposure to individual discrimination claims from employees. Audits can also help ensure that policies and processes are being applied consistently and without regard to any protected characteristics.
  
  
• Assessing data collection processes. Contractors may wish to work with counsel to evaluate whether soliciting voluntary race and sex information from applicants and employees is appropriate. 
  
  
• Preparing for compliance with the mandatory contract clause. With the 30-day implementation deadline of April 25, 2026, it is likely that contracting agencies will begin incorporating the new clause into contracts imminently. Contractors are encouraged to carefully review the clause's obligations and assess whether their current record-keeping and internal reporting systems meet the obligations.
  
  
• Assessing subcontractor and supply chain exposure. The EO's mandatory clause applies not only to prime contractors but also flows down to subcontractors at every tier. Evaluating and updating flow-down policies and supply chain monitoring could help contractors to address the new obligations.
  
  
• Evaluating other contract obligations. Contractors may consider whether the new requirements conflict with other contractual and regulatory obligations – including those to state, local, and international governments – and any compliance implications. 
  
  
• Monitoring DOJ enforcement developments. With the DOJ serving as the primary enforcement authority, contractors are encouraged to closely track enforcement actions, guidance, and policy statements emerging from the Trump Administration. Contractors are likely to pay particular attention to OMB's forthcoming compliance guidance and the identification of “high-risk” economic sectors, as companies belonging to the identified sectors may face accelerated enforcement timelines.

Conclusion

The new EO establishes a framework with direct contractual and enforcement consequences for federal contractors by mandating a specific DEI-related contract clause that includes an express FCA materiality acknowledgment. Separately, DOJ enforcement trends – including the use of the FCA and increased qui tam activity – may affect how these requirements are enforced in practice. 

With the first implementation deadline of April 25, 2026 approaching, contractors that have not yet undertaken a comprehensive review of their DEI-related programs, subcontractor relationships, workforce data practices, and employment policies may wish to prioritize compliance planning. 

For questions about the new EO and its implications for your organization, please contact the authors or your usual DLA Piper relationship attorney.