Gordon Rees Scully Mansukhani’s Government Contracts Practice Group highlights the key developments from the past month and their implications for federal contractors. Our team tracks significant decisions, regulatory changes, and practical updates to help contractors stay compliant in a rapidly changing environment.
Tune in to The Essential GovCon Brief podcast on Spotify or YouTube for an in-depth discussion of the issues highlighted below.
Executive Order Targets “Racially Discriminatory DEI Activities” by Federal Contractors
On March 26, 2026, President Trump signed an Executive Order (Order) titled Addressing DEI Discrimination by Federal Contractors, the latest in a series of actions targeting diversity, equity, and inclusion programs. The Order is notable for its narrow focus on race and ethnicity, rather than DEI broadly, and for its aggressive enforcement mechanisms, including explicit invocation of the False Claims Act (FCA).
Executive Order Overview
Defines “Racially Discriminatory DEI Activities”
The Order prohibits activities that result in disparate treatment based on race or ethnicity in:
- Recruitment and employment (including hiring and promotions)
- Contracting (including vendor and supplier agreements)
- Program participation (training, mentoring, leadership development, educational opportunities, clubs, or associations)
- Allocation or deployment of organizational resources
This definition is broader than prior DEI-related executive orders in covering internal programs and resource allocation, but also narrower because it focuses solely on race and ethnicity.
Mandates a New Contract Clause
Within 30 days of the order (by April 25, 2026), federal agencies must incorporate a new clause in all contracts and “contract-like instruments,” including subcontracts at every tier. The clause requires contractors to:
- Not engage in racially discriminatory DEI activities;
- Furnish information and reports, providing access to books, records, and accounts, for compliance assessments;
- Accept that noncompliance may result in contract cancellation, termination, suspension, or debarment;
- Report any subcontractor conduct that may violate the clause and take remedial actions as directed;
- Notify the contracting agency if sued by a subcontractor challenging the clause’s validity;
- Acknowledge that compliance is material to payment decisions for FCA purposes.
Empowers Agency-Level Enforcement
This structure mirrors prior clauses issued under prior Executive Orders (EO) 11246 and 14173 but affords each agency discretion in enforcement priorities. Agency heads must designate senior officials to oversee compliance and are authorized to:
- Cancel, terminate, or suspend contracts;
- Refer contractors for debarment; and
- Inspect contractor documents.
This decentralized enforcement approach means implementation may vary from one agency to another.
Prioritizes False Claims Act Liability
By declaring compliance “material,” the order gives the Department of Justice and private relators a clearer path to claim that noncompliance rendered payment requests false under the FCA. The Order instructs the Attorney General to prioritize FCA enforcement against noncompliant contractors and to make intervention decisions in qui tam cases within the 60-day statutory window “to the maximum extent practicable.”
Requires FAR Amendment
The Federal Acquisition Regulatory Council is directed to amend the Federal Acquisition Regulation (FAR) to incorporate this new clause and issue interim guidance to ensure prompt compliance. Although the Order directs the FAR Council to amend the FAR, those amendments must normally go through notice and comment rulemaking. Contractors should anticipate at least an interim rule, likely issued as a temporary deviation, before a final rulemaking later this year.
Key Takeaways for Contractors
The administration cannot unilaterally deem a DEI program “illegal” absent statutory authority. Enforcement actions will hinge on how agencies interpret existing anti-discrimination laws. With that in mind, companies should:
- Audit existing programs. Review any race or ethnicity-conscious initiatives (mentoring, leadership development, supplier diversity, employee resource groups) for potential disparate treatment concerns.
- Prepare for documentation requests. Agencies now have the authority to inspect DEI-related materials. Policies and decisions should be well documented and defensible.
- Manage subcontractor risk. The flow-down and reporting requirements make the prime contractor responsible for subcontractor compliance. Update subcontract clauses and due diligence procedures accordingly.
- Assess FCA exposure. Because compliance is declared “material” to payment, inaccurate certifications could trigger FCA liability.
- Monitor agency guidance. Implementation details may diverge. Watch the issuing agency’s interpretations and interim rules.
GRSM Government Contracts Practice Group
GRSM’s Government Contracts team has considerable experience defending and enforcing the rights of our contractor clients in disputes against government entities and private businesses. In addition to litigating claims in state and federal courts, we routinely handle matters before administrative tribunals, such as the Government Accountability Office, the Small Business Administration, and the Boards of Contract Appeals.
Our team of attorneys is located throughout the United States, which allows the firm to represent contractors, regardless of size, in a wide variety of industries, including defense, information technology, construction, and aerospace, among others.
Please contact Patrick Burns, Meredith Thielbahr, or Laegan Meyers with any questions or for additional information.
For additional perspective from our Government Contracts group, see this article.