On March 26, 2026, the Trump Administration issued a new Executive Order (EO) targeting diversity, equity, and inclusion (DEI) policies for federal contractors. The EO continues the Trump Administration’s hyper-trained focus on DEI, or what the President believes constitutes “racial discrimination in American society.” It follows a Department of Justice (DOJ) memorandum issued in May 2025 in which DOJ indicated it would utilize the False Claims Act (FCA) to target DEI policies for federal contractors, educational institutions, and companies doing business with the federal government. In the latest EO, the President states that “DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse within entities that engage in such practices” and raises concerns that the alleged costs associated with federal contractors’ DEI policies are then passed on to the government. The Trump Administration’s latest Executive Order on DEI has an immediate impact on federal prime contractors and subcontractors, requiring amendments to existing subcontracts, revision of internal corporate policies, and imposing FCA liability and administrative penalties for non-compliance.
The EO defines “racially discriminatory DEI activities” as “disparate treatment based on race or ethnicity in recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” Further, the EO defines “program participation” as “membership or participation in, or access or admission to: training, mentoring, or leadership development program; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.” These broad definitions highlight the expansive scope of the EO and indicate that the EO extends its reach not only to projects directly related to a company’s business with the government, but to internal company-centric activities, such as training, committees, and incentives.
- Key Takeaway: Federal contractors should immediately review internal policies, programs, incentives, and charters to determine whether they implement discriminatory DEI components or use race- and ethnicity-neutral provisions. Companies should also examine whether otherwise neutral policies and procedures are being implemented in such a way that they have a disparate impact on members of a certain race or ethnicity.
The EO imposes immediate obligations on federal prime contractors and subcontractors. Within 30 days, or by April 25, federal agencies shall “ensure that contract-like instruments, including contractors’ subcontracts and subcontractors’ lower-tier subcontracts, include the following” provision:
In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:
- 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);
- 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;
- 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;
- 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;
- 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
- 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).”
Importantly, the EO imposes obligations on prime contractors to monitor their subcontractors’ compliance and to notify the government of any “known or reasonably knowable” violation of the EO. The EO also requires this provision to be incorporated into the Federal Acquisition Regulation and for agencies to issue class deviations to obtain immediate implementation.
- Key Takeaway: The EO will result in amendment of existing contracts between contractors and the federal government, which agencies are directed to implement within 30 days through appropriate modifications. However, in advance of those modifications taking effect, prime contractors must work with subcontractors (and subcontractors must work with second-tier subcontractors) to amend existing subcontracts to include the mandatory provision. Also, all government contractors should amend their contract templates to ensure the provision is incorporated into all agreements moving forward. Because an independent contractor or consultant is considered a subcontractor when they perform work on a federal contract, companies utilizing consultant support must also amend consulting agreements to include the required EO provision. With only a 30-day window before federal agencies implement the EO, contractors should take the EO seriously and move swiftly to implement contract modifications.
The EO also announces penalties for non-compliance. It directs agencies to “cancel, terminate, suspend” any contract or contract-like instrument for “failure of the contractor or subcontractor to comply” or implement the above-referenced provision. It also requires agencies to suspend or debar contractors or subcontractors for non-compliance. Finally, the EO instructs DOJ to consider whether to bring FCA litigation against contractors and subcontractors who fail to comply with the EO’s requirements.
- Key Takeaway: The penalties for non-compliance with the EO are expected to be severe, with agencies terminating contracts and suspending or debarring contractors who violate the EO. Regardless of a contractors’ feelings about the EO, or DEI generally, the government’s power and authority to take action against non-compliant contractors is significant. Contractors should immediately implement changes necessitated by the EO to avoid costly terminations or FCA litigation and damaging administrative penalties.
The Trump Administration’s focus on anti-DEI policies continues with its latest EO. Companies doing business with the federal government and their subcontractors and second-tier subcontractors should recognize the imminent need for adjustments to existing internal policies and external contracts and implement changes to accommodate the latest EO.
If you have questions about the EO and its impact on your business, please contact Matt Feinberg, Sarah Nash, or another member of PilieroMazza’s Labor & Employment or False Claims Act practice groups.
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