New Executive Order Issued Related to Diversity, Equity and Inclusion

On March 26, 2026, the Administration issued another Executive Order related to Diversity, Equity and Inclusion (“DEI”) activities within the federal government. The Executive Order states that DEI activities and practices are unethical, may be illegal and cause waste, abuse and inefficiencies to contractors and across federal agencies.

The new Executive Order is aimed at removing “racially discriminatory” DEI practices in federal government contracting by requiring federal agencies to prohibit contractors and subcontractors from engaging in DEI activities specifically related to race (sex and gender-based programs appear unaffected, for the moment).

As defined in the Executive Order, “racially discriminatory DEI activities” constitute “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.”

Failing to adhere to the Administration’s directives may result in contractual and administrative consequences for contractors and subcontractors, including losing an award of a federal contract or being investigated for fraud under the False Claims Act.

Specifically, the Administration is now requiring federal agencies to include a contract clause in all federal contracts that:

• Requires contractors to agree not to engage in any “racially discriminatory” DEI activities;
• Allows agencies to inspect and audit contractors’ records to ensure compliance with the Executive Order;
• Requires contractors to report subcontractors in violation of the Executive Order to any relevant contracting agencies;
• Allows agencies to cancel, terminate, or suspend a contract in whole or in part due to non-compliance;
• Allows agencies to declare contractors and subcontractors ineligible for future contracting if found in violation of the Executive Order; and
• Requires contractors to inform agencies of any subcontractor that sues the contractor and puts the clause “at issue.”

Federal agencies also have the authority to suspend and debar contractors who are not compliant with the provisions of the Executive Order and the corresponding contract clause.

The Executive Order also gives the Attorney General the power to investigate any contractor or subcontractor who may be using DEI practices for fraud under the False Claims Act.  False Claims Act liability can result in serious civil and criminal penalties, of which contractors should be aware.

The Administration has directed the Federal Acquisition Regulatory (“FAR”) Council to draft language for this new clause and remove any provisions in the FAR that conflict with the Executive Order’s directives.

Similar to other FAR changes issued by the Administration, this clause is implemented informally by federal agencies without adherence to the typical formal rulemaking process. This informal policymaking may result in disparate results in the enforcement of the clause across agencies, which may cause confusion for contractors, subcontractors, and the general federal procurement sector.

Federal contractors and subcontractors should carefully review their policies and practices to ensure compliance with the Executive Order’s restrictions on racially based DEI activities, or else they risk significant consequences that may be detrimental to their businesses and livelihoods.