On March 26, 2026, President Trump issued a new diversity, equity, and inclusion (DEI)-related executive order (E.O.) titled, "Addressing DEI Discrimination by Federal Contractors." This E.O. follows – and is in addition to – the administration's prior efforts in E.O. 14151, "Ending Radical and Wasteful Government DEI Programs and Preferencing," and E.O. 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," to address what it referred to as "illegal DEI" (previously discussed here). So, in addition to continuing to monitor the certification and related requirements called for in those earlier E.O.s, contractors and subcontractors will now need to be prepared to (1) address – potentially in very short order – a new contract provision aimed at what the E.O. broadly defines as "racially discriminatory DEI activities" in a way that does not clearly align with existing anti-discrimination law, and which also imposes new audit and reporting requirements, and (2) further take into account the enforcement risks associated with the administration's view of what constitutes such activities.

Broad Definition of "Racially Discriminatory DEI Activities"

Unlike the prior DEI-related E.O.s which did not provide a definition of "illegal DEI," leading to the issuance of further Department of Justice (DOJ) guidance on that subject (previously discussed here), this order defines "racially discriminatory DEI activities" and does so quite broadly.¹ Specifically, the E.O. 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." And it defines "program participation" as "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 reference to "allocation or deployment of an entity's resources" in the definition of "racially discriminatory DEI activities," and the inclusion of mentoring, leadership development, and training programs within "program participation," suggest that many corporate programs could be subject to scrutiny by the administration – even though they are not labeled as DEI and even though the E.O. does not identify any pre-existing legal authority that would necessarily render them illegal. Consequently, the contract clause – once included in a contract – could arguably impose a contractual obligation that is broader than compliance with underlying, applicable anti-discrimination laws. By including "contracting (e.g., vendor agreements)" in the definition of "racially discriminatory DEI activities," the E.O. also could be read to reach state and local requirements for diversity in contracting/subcontracting, thus potentially creating a conflict between state and local laws, on one hand, and the new contract clause, on the other, that contractors will need to carefully assess.

New Contract Clause 

The new E.O. directs all executive departments and agencies, as well as independent establishments (collectively, agencies), "to the extent permitted by law," to include in all contracts and contract-like instruments (at the prime and subcontract levels) a new contract clause, set forth in full text in the E.O. as follows:

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 E.O. directs that agencies ensure inclusion of this clause within 30 days of the date of the order (i.e., April 25, 2026). It is unclear, though, whether the direction to include this new contract clause applies only prospectively to new contracts and contract-like instruments, or whether it also applies to existing ones.² It is also unclear whether the president has the authority to direct inclusion of specific clause text when that text has not been subject to publication in the Federal Register and the notice-and-comment process, and the E.O.'s limitation of its implementation "to the extent permitted by law" suggests the administration itself recognizes that it may be challenged on this basis.³ Moreover, because the E.O. could be interpreted as a labor and employment regulation (as opposed to a procurement regulation), it could potentially face challenges based on an argument that it is outside the scope of the president's direct regulatory power under the Federal Property and Administrative Services Act (FPASA).⁴

Despite this uncertainty, however, contractors should be prepared to see the new clause included in solicitations going forward, as well as efforts by agencies to include it in existing contracts. In addition to prohibiting contractors from engaging in "racially discriminatory DEI activities" as that term is defined in the E.O., the new clause facilitates government investigations by: 

• Providing contracting agencies with broad audit rights, requiring contractors to "furnish all information and reports, including providing access to books, records, and accounts, as required… for purposes of ascertaining compliance" with the clause. 
• Requiring contractors to "report any subcontractor's known or reasonably knowable conduct that may violate this clause." Presumably, however, this requirement should be read in light of applicable False Claims Act (FCA) precedent, which provides that a prime contractor is entitled to reasonably rely upon the certifications of its subcontractors – unless it has reason to doubt the accuracy of those certifications. See United States ex rel. Folliard v. Gov't Acquisitions, Inc., 764 F.3d 19, 29-31 (D.C. Cir. 2014). 

Enforcement Risks

The order makes clear that the administration contemplates using several different enforcement mechanisms with respect to the new clause, including:

• Contract-level remedies: Agencies are authorized to cancel, terminate, or suspend contracts (in whole or in part) for contractor or subcontractor non-compliance.
• Suspension and debarment: Agencies are directed to take appropriate action to suspend and debar non-compliant contractors and subcontractors.
• Civil FCA exposure: The E.O. reinforces consistent themes in prior E.O.s and agency communications, stating that the administration will consider non-compliance with the new clause to constitute the basis for an FCA violation. In this regard, the clause expressly states that compliance is "material" to the government's payment decisions under the FCA.⁵ Moreover, the order provides: "DEI activities impose artificial costs in hiring, promotion, and operations… [and] create unnecessary costs by reducing the pool of available labor by artificially limiting companies to hiring or promoting certain individuals, suppliers, or intermediaries based on their race or ethnicity. These costs are inevitably passed on to the Federal Government when it contracts with companies who engage in racially discriminatory DEI activities, or who use subcontractors who do so." In addition, the E.O. directs the Attorney General (AG) to consider bringing FCA actions against violators and to ensure prompt review of qui tam actions brought by private relators, including rendering a decision on intervention within the 60-day seal period to the maximum extent practicable. 
• Sector-specific targeting: The Office of Management and Budget (OMB), in coordination with the AG, the Domestic Policy Council, and the Equal Employment Opportunity Commission (EEOC) Chair, is directed to identify economic sectors that pose a particular risk of engaging in racially discriminatory DEI activities and issue additional compliance guidance for those sectors.

Conclusion

The administration's ongoing focus on DEI-related issues requires continued vigilance by contractors to understand the legal and enforcement risks in question. In particular, it is advisable for contractors to assess their existing practices in light of the E.O.'s definition of "racially discriminatory DEI activities," given the lack of clarity as to whether that definition is co-extensive with existing anti-discrimination laws. After having made such an assessment, contractors can then assess their enforcement risk, plan accordingly in light of that assessment, and be prepared to defend the rationale for activities that may come under scrutiny.

If you have any questions regarding the E.O. or your company's response to it, please contact one of the Miller & Chevalier attorneys listed below.

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Nate Lankford, nlankford@milchev.com, 202-626-5978

Katherine E. Pappas, kpappas@milchev.com, 202-626-5816

Alejandra Montenegro Almonte, aalmonte@milchev.com, 202-626-5864

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Alex L. Sarria, asarria@milchev.com, 202-626-5822

Ashley Powers, apowers@milchev.com, 202-626-5564

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

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¹We note, however, in contrast to many of the administration's prior DEI-related efforts, the order here is limited to disparate treatment based on "race or ethnicity," and does not mention sex or gender-based discrimination.

²To the extent an agency were to seek to include the new clause in an existing fixed-price contract through the issuance of a unilateral modification, the contractor would almost certainly be entitled to a price adjustment to recover the cost associated with compliance with the new clause under the contract's Changes clause. 

³The E.O. requires the Federal Acquisition Regulation (FAR) Council, within 60 days of the date of the E.O., to issue deviation and interim guidance under subpart 1.4 of the FAR regarding agency implementation of the new clause, "as appropriate and consistent with applicable law." The purpose of this is unclear, but it would seem to relate solely to procedural mechanisms to implement the clause as set forth in the E.O. – and not to the substance of the clause. Even so, the procedures established by FAR subpart 1.4 for deviation clauses arguably do not contemplate the implementation of an entirely new clause set forth initially in an E.O, and so it is not clear that FAR subpart 1.4 authorizes the implementation of the new clause.

The E.O. also requires the FAR Council, "to the extent permitted by law," to amend the FAR to provide for inclusion of the new clause and to remove any provisions that conflict with the new clause. The E.O. establishes no deadline for such action by the FAR Council.

⁴Of potential relevance here, several courts struck down the so-called contractor vaccine mandate E.O., issued by then-President Biden, on the basis that it constituted a workplace safety regulation (as opposed to a procurement regulation) and so fell outside the scope of FPASA. See, e.g., Georgia v. President of the United States, 46 F.4th 1283 (11th Cir. 2022); see also Louisiana v. Biden, 55 F.4th 1017 (5th Cir. 2022); Commonwealth v. Biden, 57 F.4th 545 (6th Cir. 2023).

⁵Under existing U.S. Supreme Court precedent, this contract language in and of itself would be insufficient to demonstrate materiality within the meaning of the FCA. See Universal Health Servs., Inc. v. United States, 579 U.S. 176, 191 (2016) ("statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment) (further discussed here).

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