New Executive Order Directs Agency Relationships with Federal Contractors

New Executive Order Directs Agency Relationships with Federal Contractors Participating in Diversity, Equity, and Inclusion

On March 26, President Trump announced an executive order, “Addressing DEI Discrimination by Federal Contractors.” The executive order reflects the current administration’s policy to promote “economy and efficiency” in federal contracting by preventing discrimination carried out through certain diversity, equity, and inclusion (DEI) practices. It explains that some federal contractors and subcontractors continue to utilize DEI efforts that go against anti-discrimination laws, such as Title VII of the Civil Rights Act of 1964, which was mentioned in the administration’s January 2025 executive order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”

The March 2026 order 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.” Under the order, federal executive departments and agencies, independent establishments subject to the Federal Property and Administrative Services Act of 1949, must, within 30 days, to the extent permitted by law, ensure that covered contracts and contract-like instruments include a clause requiring contractors, and their subcontractors.

“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 are material to the Government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).”

The order directs agencies to enforce the new contract clause requirement through remedies such as cancellation, termination, or suspension of contracts, in whole or in part. It also instructs impacted agencies to report compliance to the Assistant to the President for Domestic Policy. The U.S. Department of Justice is instructed to consider enforcement under the False Claims Act. Accordingly, any entities that have business dealings with the federal government should ensure they thoroughly understand the executive order’s requirements.

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Source: Addressing DEI Discrimination by Federal Contractors