On March 26, 2026, President Trump issued a new Executive Order “Addressing DEI Discrimination by Federal Contractors” (“EO”)  along with an explanatory Fact Sheet. The new EO states that –

“DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse within entities that engage in such practices.”

The EO further states it is intended to ensure “merit-based and efficient contracting and employment.”

The “Bottom Line”

The EO creates new mandatory contract language that, if violated, can lead to existing contract termination, future contract debarment, and significant False Claims Act (“FCA”) liability. It also requires prime contractors to report to federal contracting agencies any subcontractors whose actions may violate the new contract language.

Interestingly, the EO and new contract language focus solely on “racially discriminatory DEI activities” and does not address or apply to DEI efforts or programs related to sex/gender, or other protected categories.

The EO directs Federal agencies to include the relevant contract language in federal contracts and subcontracts within 30 days, by April 25, 2026.

What DEI Efforts, Programs & Activities Are Covered? 

The EO defines “racially discriminatory DEI activities” 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.

The EO further broadens the employer programs addressed to include –

membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.

The New Mandatory Contract Clause

By April 25, 2026, agencies must include the specific language in prime contracts as well as first tier, and also lower-tier, subcontracts. The EO states that employer compliance with these requirements must be “genuine and verifiable.”

Signing employers agree to six binding obligations –

1. 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);
2. The contractor will furnish to contracting agencies all information and reports, including providing access to books, records, and accounts, for purposes of ascertaining compliance;
3. In the event of the contractor’s or a sub-contractor’s noncompliance with this clause, the government contract may be canceled, terminated, or suspended in whole or in part, and the contractor or sub-contractor may be declared ineligible for further Government contracts;
4. 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;
5. The contractor will inform the contracting department or agency if a sub-contractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and,
6. 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).

What Should Employers Do Now?

Employers should take steps quickly to ensure compliance, including –

• Under Privilege, Audit Your DEI & EEO Programs – Conduct a privileged review of your current programs, policies, and practices and vendor agreements to ensure they comply with the new EO and contract language.
• Update Your Vendor-Subcontractor Agreements – After March 26th, identify relevant subcontracts that need to be updated to include new language, reporting obligations, or other processes to ensure compliance.
• Prepare for Prime Contract Changes – Agencies have 30 days to incorporate the new clause, so your contracts and legal teams should be ready to review and respond when negotiating new and modified federal contracts.
• Pay Attention for Forthcoming Guidance – The Office of Management & Budget has been directed to issue further guidance and identify industry “sectors” at particular risk for violations. If your industry is identified, you should be prepared for additional scrutiny and develop an action plan.

We will update this Employer Alert as more information becomes available. If you have any questions, please contact the Silberman Law legal professional with whom you work or simply reply to this Alert.