On March 26, President Trump signed an executive order (EO) titled “Addressing DEI Discrimination by Federal Contractors,” directing federal agencies to include clauses in government contracts barring contractors from engaging in “racially discriminatory DEI activities.” The order applies to federal contractors and subcontractors at all tiers and carries significant enforcement consequences, including contract termination, suspension, and debarment.
The order defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in recruitment, employment decisions (such as hiring and promotions), contracting, program participation, or the allocation of an entity’s resources. “Program participation” is defined broadly to include access to training, mentoring, leadership development programs, educational opportunities, clubs, associations, and similar opportunities sponsored or established by the contractor.
Required Contract Clause
Within 30 days of the order, executive departments and agencies must ensure that all covered contracts include a clause under which contractors agree to:
- Refrain from engaging in any racially discriminatory DEI activities as defined in the order;
- Furnish all information, records, and access required by the contracting agency to assess compliance;
- Report known or reasonably knowable violations by subcontractors to the contracting agency and take directed remedial actions;
- Notify the contracting agency if a subcontractor lawsuit puts the validity of the clause at issue; and
- Acknowledge that compliance is material to the government’s payment decisions under the False Claims Act.
Penalties and Enforcement
The order establishes several enforcement mechanisms:
- Contracting agencies may cancel, terminate, or suspend contracts — in whole or in part — for noncompliance, and may suspend or debar noncompliant contractors or subcontractors.
- The attorney general is directed to consider whether to bring False Claims Act actions against violating contractors and to ensure prompt review of related civil suits brought by private parties.
- The Office of Management and Budget (OMB) is directed to issue compliance guidance to contracting agencies and, in coordination with the attorney general, the EEOC, and the Domestic Policy Council, to identify economic sectors posing elevated risk of racially discriminatory DEI activity and issue additional sector-specific guidance.
Implementation Timeline
The order also establishes a timeline for implementation:
- Within 30 days: Agencies must begin including the required clause in contracts.
- Within 60 days: The Federal Acquisition Regulatory Council must issue interim deviation guidance on implementing the clause pending formal amendments to the Federal Acquisition Regulation (FAR).
- Within 120 days: Each agency head must review implementation and report to the assistant to the president for domestic policy on compliance.
Next Steps and Additional Resource
CUPA-HR is engaging federal agencies to seek additional clarity on the requirement to “furnish all information, records” and whether this will include any regular reporting requirements. We will also continue to monitor agency guidance, FAR rulemaking, and enforcement activity related to this order.
We also encourage you to review our March 20, 2025, alert: EEOC and DOJ Issue Technical Assistance Documents on Unlawful DEI-Related Discrimination.