On March 26, 2026, the Trump administration issued an executive order titled "Addressing DEI Discrimination by Federal Contractors" that is another significant step in the administration’s broader effort to scrutinize diversity, equity, and inclusion (DEI) initiatives. Building on earlier directives and enforcement priorities, this order focuses specifically on federal contractors and subcontractors, introducing new compliance expectations and reinforcing the administration’s view that certain DEI practices may constitute unlawful discrimination.

For government contractors, the order adds compliance challenges, increased scrutiny and reporting obligations, and practical challenges where federal requirements may diverge or conflict with state and local laws and policies. It also reinforces the need for federal contractors to pay attention to flow down and oversight responsibilities throughout their supply chains.

Key Provisions of the Executive Order

The new order adds definitions of "racially discriminatory DEI activities" in hiring, promotions, contracting, and "program participation" in activities such as training, mentoring, and clubs that are sponsored or established by contractors or subcontractors.

Importantly, the order requires the government to, within 30 days of when the order was issued, make sure that contracts include, to the extent permitted by law, a clause specified in the order that prohibits contractors from engaging in any "racially discriminatory DEI activities." It also requires contractors to provide access to their books, records, and accounts. Noncompliance could lead to the contract’s cancellation, and various other penalties, including suspension and debarment and liability under the False Claims Act. The order makes it clear that the requirements must be flowed down to subcontractors.

Agency heads are required to evaluate and report on the implementation of the new clause within 120 days of the date of the order. The executive order requires the Federal Acquisition Regulation (FAR) Council to amend the regulations to include the clause as described in the order and remove any conflicting provisions. Moreover, within 60 days of the date of the order, the FAR Council must issue interim guidance to agencies for deviations to the FAR to affect the purpose of the executive order. The FAR Council released a class deviation and guidance on April 17, 2026, together with a new FAR clause that will be used effective April 24, 2026, and that will require modification of existing contracts by July 24, 2026.

Takeaways for Contractors and Subcontractors

Federal contractors are likely familiar with assessing and complying with federal contract obligations. That said, this new executive order introduces new compliance burdens. Employers and companies that do work under federal contracts should:

• Keep an eye out for modifications to contracts and subcontracts that include the new clause language required under the executive order and confirm that the new language is incorporated into contract renewals, extensions, or modifications.
   
• Assess Federal and State Compliance Tensions: Analyze obligations in state and local contracts that may conflict with federal requirements and plan for potential conflicts.
   
• Evaluate Small Business Subcontracting Plans: Consider whether subcontracting goals, outreach efforts, and related compliance practices align with federal requirements.
   
• Assess Certification and False Claims Act Risk: Evaluate whether existing certifications, representations, and internal compliance statements align with federal requirements.
   
• Update Flow Down Provisions: Prepare lower-tier sub-agreements to incorporate the order’s new mandatory clause but take care to do this in accordance with the instructions contained in the modification.
   
• Review Third-Party Oversight: Review diligence, monitoring, and audit mechanisms for subcontractors and partners, in order to ensure that adequate oversight can be implemented.
   
• Review Compliance Infrastructure: Ensure that adequate systems and personnel are available to manage reporting, documentation, and audit readiness.
   
• Train Leadership and Compliance Teams: Focus on heightened enforcement risk and cross-jurisdictional compliance challenges.
   
• Monitor Implementation: Track agency guidance and ensure adequate systems and competent personnel are in place to promote timely communication within your organization.

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