On March 26, 2026, the president issued an executive order titled “Addressing DEI Discrimination by Federal Contractors”, directing federal agencies to include a new mandatory contract clause prohibiting federal contractors and subcontractors from engaging in “racially discriminatory DEI activities.” The order also expressly links compliance to False Claims Act (FCA) materiality, signaling heightened enforcement risk for contractors who fail to implement appropriate compliance controls.
This alert summarizes the order’s key provisions and provides recommended next steps for government contractors.
Link to Key Requirements of the Executive Order Key Requirements of the Executive Order
1. Prohibition on “Racially Discriminatory DEI Activities”
The order defines “racially discriminatory DEI activities” broadly as disparate treatment based on race or ethnicity in:
- Recruitment and hiring
- Promotions and employment practices
- Contracting and vendor agreements
- Program participation (including access to training, mentoring, leadership development, clubs, and similar opportunities)
- Allocation or deployment of an entity’s resources
This definition extends beyond traditional employment decisions and may implicate a wide range of internal programs and supplier initiatives.
2. Mandatory Contract Clause Within 30 Days
Within 30 days of the order, federal agencies are directed to ensure that covered contracts and contract-like instruments include a clause requiring contractors to:
- Refrain from engaging in prohibited activities;
- Provide access to information, books, records, and accounts to confirm compliance;
- Accept that noncompliance may result in termination, suspension, or cancellation;
- Report subcontractor conduct that is “known or reasonably knowable” to violate the clause; and
- Notify the government if a subcontractor files litigation challenging the clause.
Importantly, the clause also states that compliance is material to the government’s payment decisions for FCA purposes.
3. Flowdown to Subcontractors and Lower-Tier Subcontracts
The clause is required to apply not only to prime contractors, but also to subcontractors and lower-tier subcontractors, creating immediate flowdown and oversight obligations for prime contractors.
Prime contractors should anticipate heightened scrutiny of subcontractor compliance programs and potential enforcement exposure if subcontractor issues are not identified, escalated, and remediated.
Link to Enforcement Mechanisms and Contractor Risk Enforcement Mechanisms and Contractor Risk
1. Contract Remedies and Debarment Risk
The order directs agencies to:
- Cancel, terminate, or suspend contracts (in whole or in part) for noncompliance; and
- Pursue suspension and debarment actions against contractors or subcontractors for failure to comply.
These provisions elevate DEI-related compliance into a contract performance and contractor responsibility issue, rather than a purely HR or internal governance issue.
2. False Claims Act Exposure
The order specifically instructs the attorney general to consider FCA actions against contractors and subcontractors who violate the clause, and to prioritize review of qui tam cases involving these issues.
Because FCA liability can include treble damages and penalties, contractors should treat compliance as a high-stakes risk area comparable to cybersecurity, pricing compliance, or mandatory disclosure obligations.
3. FAR Implementation Is Coming Quickly
The Federal Acquisition Regulatory Council is directed to issue deviation and interim guidance within 60 days, with subsequent FAR amendments to follow.
Contractors should expect to see the clause incorporated into:
- New solicitations and awards,
- Contract modifications, and
- Subcontract templates and flowdowns.
Link to Recommended Contractor Actions (Next 30-90 Days) Recommended Contractor Actions (Next 30-90 Days)
Given the speed of anticipated implementation and the FCA risk language, contractors should consider taking the following steps immediately:
1. Conduct a Privileged Compliance Review
Contractors should inventory and review programs that could be implicated, including:
- Recruiting initiatives
- Leadership development and mentoring programs
- Training and scholarship opportunities
- Employee resource/affinity groups
- Promotion and evaluation criteria
- Supplier diversity programs and vendor selection practices
The review should focus on whether eligibility, participation, or benefits are tied to race or ethnicity. Contractors should consider engaging legal counsel to assist with this review to help preserve attorney-client privilege.
2. Ensure Internal Programs Are Compliant
Training, mentoring, leadership development, and similar programs should be reviewed to confirm they are compliant with the order.
3. Review Supplier and Subcontractor Diversity Programs
Because the order expressly covers contracting and vendor agreements, contractors should review whether supplier initiatives or spend targets potentially run afoul of the order.
4. Update Subcontract Flowdowns and Monitoring Controls
Prime contractors should promptly update subcontract templates to incorporate the clause and require subcontractor certifications. Primes should also implement monitoring procedures, including periodic compliance attestations and risk-based reviews.
5. Strengthen Documentation and Audit Response Procedures
Because the clause requires production of information and access to records, contractors should ensure that compliance documentation is organized, consistent, and reviewable.
6. Train HR, Recruiting, and Procurement Personnel
Contractors should ensure relevant personnel understand the new clause requirements and avoid informal practices that could create compliance exposure.
Link to Conclusion Conclusion
This executive order represents a major development in federal contractor compliance, particularly due to its broad scope, subcontractor flowdown obligations, and explicit linkage to FCA materiality.
Contractors should act quickly to evaluate existing DEI-related programs and subcontractor practices, implement internal controls, and prepare for agency audits and enforcement activity.
If you have questions regarding how this order may affect your contracts, subcontracts, or internal employment and supplier programs, please do not hesitate to contact Aron Beezley or Gabby Sprio.