A New Executive Order for DEI & Federal Contractors
Last week, President Trump signed a new executive order titled “Addressing DEI Discrimination by Federal Contractors” that seeks to ban unlawful DEI related activities. It states that beginning April 25, 2026, all new contracts (and renewals / modifications to existing contracts) will include the following mandatory clause prohibiting “racially discriminatory DEI activities”:
“In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:
The contractor will not engage in any racially discriminatory DEI activities, as defined in section 2 of the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors);
The contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;
In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further Government contracts;
The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;
The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and
The contractor recognizes that compliance with the requirements of this clause are material to the Government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).”
Racially discriminatory DEI is defined in section 2 of the executive order as “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.” It is notable that the new EO specifically calls out racially discriminatory DEI activities without also including sex or other protected classes, showing that we should anticipate extra scrutiny around race-conscious employment decisions in audits and other reviews.
Importantly, the executive order’s accompanying fact sheet states that contractor compliance must be “genuine and verifiable,” which reinforces AAP Compliance’s consistent messaging across the past year: recordkeeping and data collection continues to be paramount in order to show that your organization does not operate any discriminatory employment practices. With the new executive order’s strong link to the False Claims Act, federal contractors should understand that agreeing to the new contract clause, or any future required certification of compliance, must be backed by documented proof. An arbitrary agreement can put contractors at significant legal and financial risk if they are later challenged and they are not able to back up their claims. In other words, you cannot legally agree to Section 1 of the clause if you do not first conduct an analysis to ensure racially discriminatory DEI activities do not exist.
Our Recommendations for Federal Contractors:
Prepare for a new compliance regime that is focused on verification and put all your employment activities through this microscope. Ensure you can back up any DEI compliance certification claims with documentation. This means:
Conduct an annual statistical analysis to identify possible disparate treatment in your employment practices or areas that could be interpreted as discrimination, like the reporting produced by AAP Compliance.
Periodically review your data collection and recordkeeping practices to ensure a) you are collecting the data you need to produce a non-discrimination analysis, and b) that no lapses in data collection inadvertently occur.
Review all company programs or sponsored activities/events/groups to ensure they are not segmented by race or ethnicity, or any other protected characteristic.
Review all company employment policies, handbooks etc., to ensure the removal of any diversity goals and ensure that all employment activities are based on merit and without regard to any protected characteristics.
Review your website and all other public materials to ensure the removal of any statements of diversity goals that violate this new executive order.
And, according to the executive order, you can be held responsible for the actions of your subcontractors. Ensure that your subcontractors understand these new rules and are committed to following them. Prepare to include the new DEI contract clause in your subcontracts.
To learn more about how our robust reporting helps equip employers with the statistical insights needed to successfully defend their employment practices, contact us today!