Executive Order on DEI Discrimination by Federal Contractors

JD Supra Government Contracts

Published March 26th, 2026

Detected March 28th, 2026

Summary

President Trump issued an executive order on March 26, 2026, establishing new requirements for federal contractors regarding Diversity, Equity, and Inclusion (DEI) activities. The order defines racially discriminatory DEI activities and mandates new contract clauses requiring contractors to report on and prevent such practices, with potential penalties for non-compliance.

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What changed

On March 26, 2026, President Trump issued Executive Order 14XXX, titled "Addressing DEI Discrimination by Federal Contractors." This order establishes a new framework for federal contractors to comply with nondiscrimination obligations, specifically focusing on "racially discriminatory DEI activities." The order defines these activities broadly to include disparate treatment based on race or ethnicity in recruitment, employment, contracting, and resource allocation. It also defines "program participation" to encompass access to contractor-sponsored training, mentoring, and development opportunities. The executive order mandates that all executive departments and agencies include new contract clauses within 30 days, requiring contractors to refrain from racially discriminatory DEI activities, furnish reports and access to records for compliance verification, and acknowledge that non-compliance may lead to contract cancellation, termination, suspension, or ineligibility for future government contracts.

Federal contractors and subcontractors must immediately review their existing DEI policies and practices to ensure they do not constitute "racially discriminatory DEI activities" as defined by the order. Within 30 days of contract award or renewal, new contract clauses must be incorporated, obligating contractors to report on their compliance and any subcontractor non-compliance. Failure to adhere to these new requirements can result in severe consequences, including contract termination and debarment from future government contracts. Contractors are also required to report any known or reasonably knowable subcontractor conduct that may violate the clause to the contracting agency and take remedial actions as directed. The order also requires contractors to inform the contracting agency if a subcontractor sues them in relation to these clauses.

What to do next

Incorporate new contract clauses related to DEI nondiscrimination into all federal contracts and contract-like instruments within 30 days.
Review and revise existing DEI policies and practices to ensure compliance with the definition of "racially discriminatory DEI activities."
Establish procedures for reporting subcontractor non-compliance and remedial actions to the contracting agency.

Penalties

Contract cancellation, termination, or suspension in whole or in part; contractor or subcontractor may be declared ineligible for further Government contracts.

Source document (simplified)

March 27, 2026

Executive Order 11246 Redux: Trump’s New Executive Order on DEI Calls for Renewed Scrutiny of Government Contractors

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At a Glance

New DEI executive order establishes a new framework for monitoring federal contractors’ compliance with nondiscrimination obligations.

Order excludes any focus on sex‑based discrimination, and enforcement authority is now decentralized across multiple executive agencies rather than being vested in a single specialized entity. On March 26, 2026, President Trump issued an executive order, Addressing DEI Discrimination by Federal Contractors. Reprising themes first raised in Executive Order 14151: Ending Radical and Wasteful Government DEI Programs and Preferencing and Executive Order 14173: Ending Illegal Discrimination and Restoring Merit-Based Opportunity, this new executive order declares that “DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse within entities that engage in such practices.” Finding that the costs purportedly associated with DEI are “inevitably passed on to the Federal Government when it contracts with companies who engage in racially discriminatory DEI activities,” the president seeks to impose new obligations on federal contractors, including reporting requirements, that are designed to prevent racial discrimination 1 and permit the government to identify and remedy such discrimination when it occurs.

The Definition of Racially Discriminatory DEI Activities

This new executive order defines “racially discriminatory DEI activities” to mean:

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.

“Program participation” is also a defined term, meaning:

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.

New Contract Clauses and Requirements for Federal Contractors and Subcontractors

The executive order instructs all executive departments and agencies to begin including the following language in their contracts and contract-like instruments within 30 days:

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).

Implementation of the New Requirements

The executive order instructs the Federal Acquisition Regulatory Council (FAR Council) to amend the Federal Acquisition Regulation (FAR) to provide for the inclusion of this new contract language in solicitations and contracts and to remove any currently required provisions that are inconsistent with the new provisions. The executive order gives the FAR Council 60 days in which to issue deviation and interim guidance regarding the implementation of the new clauses prior to formal amendment of the FAR.

Whether the legal and procedural requirements for adding this language to federal contracts can be fulfilled within either the 30- or 60-day deadlines contemplated by the executive order is not clear and could afford a basis for legal actions challenging the implementation of this executive order.

Making higher-tier government contractors responsible for monitoring and reporting on subcontractor’s non-compliance with the new contract clauses places a new and potentially heavy burden on government contractors. The creation of such a new obligation would seem to require formal rulemaking.

The executive order provides no guidance regarding the substance of the information and reports that might have to be produced by a government contractor pursuant to this new requirement or the standards that must be met by the government to support a demand for such information. Such new requirements would also seem to require formal rulemaking.

Responsibility for implementation of the new requirements does not appear to be vested in any one federal agency such as the Office of Federal Contract Compliance Programs (OFCCP) but, rather, seems to devolve to each agency independently. This means that requirements and enforcement procedures may vary from one agency to another. However, the Office of Management and Budget (OMB) is instructed to provide guidance to contracting agencies regarding compliance with the executive order.

Penalties for Non-Compliance

The executive order provides that a contractor that fails to comply with the new contractual provisions may have its contract terminated, suspended, or cancelled in whole or in part and may be subject to debarment from further government contracting.

The executive order also seeks proactively to:

identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities based on current or past conduct and issue additional guidance to contracting agencies regarding best practices to ensure compliance with this order within such sector.

Responsibility for this task is delegated to the OMB director, in coordination with the attorney general, the assistant to the president for domestic policy, and the chair of the Equal Employment Opportunity Commission. In addition, the attorney general is directed to consult with contracting agencies to consider whether to bring claims under the False Claims Act against contractors that have violated the new contract terms and to prioritize the review of civil actions brought by private persons against federal contractors for false claims.

Analysis

The language of this new executive order reflects a clear intention to discourage government contractors from engaging in DEI. However, the definition of racially discriminatory DEI activities makes it clear that the executive order is prohibiting only disparate treatment based on race or ethnicity, which is already unlawful. Accordingly, the executive order does not seem to change what government contractors may or may not do as a matter of law.

What the executive order does is establish a new framework for monitoring federal contractors’ compliance with nondiscrimination obligations. This function was previously carried out by the OFCCP until President Trump revoked Executive Order 11246 last year.

The primary difference is that the new order excludes any focus on sex‑based discrimination, and enforcement authority is now decentralized across multiple executive agencies rather than being vested in a single specialized entity.

As a practical matter, knowing that a company’s employment practices will be scrutinized in light of the president’s expressed hostility toward DEI may make contractors reluctant to engage in even those DEI-related practices that are lawful.

Until we have more details as to how the executive agencies intend to implement this new executive order, it is hard to predict what is going to follow. When Lyndon Johnson issued Executive Order 11246 in 1965, few would have anticipated the extensive regulatory scheme that would rise around it. From this more recent presidential action, one can reasonably anticipate hundreds of pages of new regulations, years of litigation, and new burdens on those employers that choose to do business with the federal government.

Footnotes

1 Notably, the Executive Order makes no mention whatsoever of discrimination on the basis of sex.

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