On March 26, 2026, President Donald J. Trump signed a new executive order titled Addressing DEI Discrimination by Federal Contractors, accompanied by an official Fact Sheet outlining the administration’s rationale and policy direction. Together, these documents signal a continued focus by the federal government on diversity, equity, and inclusion (DEI) practices of organizations that do business with the government. This blog breaks down what this new executive order does and what federal contractors should expect next.
At its core, the executive order aims to eliminate what the administration describes as “racially discriminatory DEI practices” among federal contractors and subcontractors. The order specifically defines these activities as those involving
“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.”
The order explains that program participation means access or admission to training, mentoring, or leadership development programs, educational opportunities, clubs, associations, or other similar opportunities sponsored by a federal contractor or subcontractor.
Contractors should take note that this specific executive order focuses on racial discrimination and not all types of discrimination prohibited by federal law.
The order introduces several key requirements:
Mandatory Contract Clauses
By April 25, 2026, Federal agencies must insert clauses into contracts requiring that contractors agree that they will not engage in any “racially discriminatory DEI activities” as defined by the new order. It remains to be seen how this new contract clause will impact the proposed contract clauses under Executive Order 14173, which have been under review since April 2025.
Broad Applicability
The requirements extend not only to prime contractors but also to subcontractors and lower-tier partners.
New Requirement to Furnish Compliance Information
The new contract clauses will also include a requirement that contractors agree to furnish information and reports to contracting agencies to demonstrate their compliance.
Enforcement Mechanisms
Agencies are empowered to terminate, suspend, or debar contractors that fail to comply.
Federal Oversight and Guidance
The Office of Management and Budget (OMB) is tasked with issuing implementation guidance and identifying “high-risk sectors” for heightened scrutiny and enforcement.
Legal and Compliance Risk
Like other Executive Orders issued by this Administration, the order signals potential exposure under the False Claims Act for misrepresenting compliance.
For companies doing business with the federal government, the implications are immediate and significant:
1. Compliance Programs Must Be Reevaluated
Organizations will need to carefully review DEI-related initiatives, training programs, hiring practices, and internal policies to ensure they do not fall within the scope of prohibited activities. Based on recent remarks by a DOJ official, organizations can operate DEI programs without discriminating – what matters is how the policies and programs are implemented, and the impact they have on selection decisions and other terms, conditions and privileges of employment.
2. Contractual Risk Is Increasing
Non-compliance could lead to:
3. Documentation and Certification Will Be Critical
Contractors will need to formally certify compliance and maintain documentation demonstrating adherence to the new rules. Workforce analytics will remain one of the most accurate and legally defensible ways to determine whether selection and other employment decisions are being made regardless of race, or any other protected characteristic, or if they are potentially being influenced by DEI policies or programs.
4. Subcontractor Oversight Will Expand
Prime contractors may be responsible for ensuring that their subcontractors also comply, increasing supply chain risk.
5. Evaluating High-Risk Sectors
While the order itself does not define these sectors, the mandate gives OMB broad discretion to shape how and where enforcement is concentrated. Organizations that anticipate being classified as high-risk should assume a more intensive compliance environment and plan accordingly.
The new executive order and fact sheet signal a continued focus on what the Administration defines as merit-based outcomes. Regardless of where organizations stand on the policy itself, the compliance obligations are real—and potentially consequential. Careful review, legal guidance, and proactive analysis of employment practices – from both a qualitative and quantitative lens - will be essential for navigating this new environment.