Addressing DEI Discrimination by Federal Contractors

Key Points

• Trump signed an executive order that prohibits federal contractors and subcontractors from engaging in diversity, equity, and inclusion (DEI) programs that treat people differently based on race or ethnicity. The order frames DEI as a form of racial discrimination that undermines merit-based principles.
• Within 30 days, all federal agencies must add a new clause to contracts requiring companies to certify they do not engage in racially discriminatory DEI activities — covering hiring, promotions, vendor agreements, training programs, mentoring, and leadership development.
• Companies that violate the new rules face severe consequences: their contracts can be canceled, terminated, or suspended, and they can be barred from future government work. The government can also pursue False Claims Act lawsuits against contractors who falsely certify compliance.
• The order requires contractors to report on subcontractors they suspect of violating the rules, creating a chain of accountability throughout the federal contracting supply chain. Contractors must also notify the government if a subcontractor sues over the validity of the clause.
• The Office of Management and Budget, working with the Attorney General and the EEOC, will identify economic sectors considered high-risk for DEI activities and issue targeted guidance for those industries. Each agency must review its own compliance and report back within 120 days.

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