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A recent executive order specifies forthcoming contract language prohibiting federal contractors and subcontractors from engaging in “racially discriminatory” DEI activities.

By Dean W. Baxtresser, Danielle Conley, Kyle R. Jefcoat, Danielle J. McCall, Anne W. Robinson, Jude Volek, Morgan L. Maddoux, Genevieve P. Hoffman, and John (Jack) Ring

Key Points:

  • A new executive order directs federal agencies to include a contract clause requiring federal contractors and subcontractors to agree not to engage in racially discriminatory DEI activities.
  • Unlike prior executive orders targeting DEI practices of federal contractors, the latest Order includes specific contractual language requiring contractors and subcontractors to agree not to engage in discriminatory DEI activities, defined broadly as disparate treatment based on race or ethnicity across hiring, promotions, vendor agreements, training, and program participation.
  • The Order includes significant consequences for noncompliance — authorizing agencies to cancel, terminate, or suspend contracts and debar contractors for noncompliance. The Order also calls for FCA enforcement and requires contractors to recognize that compliance is “material to the Government’s payment decision,” a necessary element of an FCA claim.
  • The Order directs agencies to implement the clause within 30 days and the FAR Council to take administrative action to formally incorporate the clause into the FAR.

On March 26, 2026, President Trump signed an executive order, “Addressing DEI Discrimination by Federal Contractors” (the Order), directing federal agencies to include specific language in federal contracts prohibiting “racially discriminatory [diversity, equity, and inclusion (DEI)] activities” and imposing potential reporting obligations on federal contractors and subcontractors to ensure compliance.

This Client Alert analyses the Order and explains what it means in practice for federal contractors.