On March 26, 2026, President Trump issued an Executive Order (EO) titled “Addressing DEI Discrimination by Federal Contractors,” the latest in a series of Executive Orders and related actions by the Administration targeting what it views as unlawful Diversity, Equity, and Inclusion (“DEI”) related practices.  Most notable about this EO is that, unlike prior executive actions focused on “DEI” practices more broadly, this EO focuses on “racially discriminatory” DEI practices specifically.  The EO is premised on the Administration’s view that, despite the earlier DEI-related executive actions, “some entities continue to engage in DEI activities and often attempt to conceal their efforts to do so.”

The new EO has five primary components:

1. Definitions:  The EO defines “racially discriminatory DEI activities” as those that lead to “disparate treatment” based on race or ethnicity in recruitment, employment (including hiring and promotions), contracting, program participation, or the allocation or deployment of resources.  Consistent with the Equal Employment Opportunity Commission’s March 2025 technical assistance documents titled “What You Should Know About DEI-Related Discrimination at Work” and “What To Do If You Experience Discrimination Related to DEI at Work” (discussed previously here) and Attorney General Pam Bondi’s July 29, 2025 memorandum titled “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” (discussed previously here), the EO defines “program participation” as membership or participation in, or access or admission to, training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities. 
2. New Contract Term and Flow-Down Obligation:  The EO requires that, within 30 days, all executive departments and agencies must make sure that contracts and “contract-like instruments” — including subcontracts and lower-tier agreements — contain a new contract clause, which is spelled out in the EO itself.  The clause, in pertinent part, requires contractors to agree that they will:  (a) not undertake any “racially discriminatory DEI activities”; (b) provide “information and reports” that may be required for the government to assess compliance with the clause; (c) report any “known or reasonably knowable conduct” of any subcontractor that might violate the clause, and take corresponding remedial actions as directed; and (d) notify the government if the contractor is sued by a subcontractor in a manner that “puts at issue, in any way,” the new clause’s validity.  The clause provides for full or partial cancellation, termination, or suspension of the contract in the event of noncompliance by either the contractor or any subcontractor.  And, like the earlier DEI executive actions, the clause includes a statement that the contractor recognizes that compliance is material to payment pursuant to the False Claims Act.
3. Contract Default and Suspension/Debarment Penalties:  The EO addresses consequences for noncompliance.  It directs the Office of Management and Budget (“OMB”) to promulgate guidance requiring that contracting agencies:  (a) ensure that contracts and contract-like instruments are cancelled, terminated, or suspended for noncompliance; and (b) “take appropriate action” to debar or suspend contractors and subcontractors for noncompliance.  It also directs the Director of OMB, in coordination with others, to “identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities” based on the current or prior conduct of those entities.  It also directs the issuance of further guidance to contracting agencies setting out “best practices” to assure compliance within the identified economic sectors.  The EO does not address how these economic sectors will be identified, or what the further guidance will entail.
4. Agency Review and FCA Enforcement:  Each agency head must, within 120 days, review their agency’s implementation of the new clause and report out regarding compliance.  Thereafter, agency heads must continue to conduct regular reviews and undertake “appropriate measures to ensure such compliance.”  The Attorney General is directed to consult with agency heads to determine whether to bring a False Claims Act action against any contractor or subcontractor that violates the new contract clause, and to make sure that qui tam actions are promptly reviewed and considered.
5. FAR Amendment and Deviation:  The EO directs the FAR Council to amend the FAR to implement the new contract clause and to remove any conflicting or inconsistent provisions.  Additionally, the FAR Council must, within 60 days, issue corresponding “deviation and interim guidance” before the FAR is formally amended.

Overall, the new EO appears aimed at furthering similar goals as prior executive actions pertaining to DEI-related programs and practices.  In some ways, the EO makes more concrete certain of those aims, particularly by providing language for a contract clause.  But in other ways, the EO narrows the focus of those earlier executive actions to “racially discriminatory DEI activities” specifically.

More information is likely to follow in the coming days, and legal challenges may eventually materialize.  In the meantime, federal contractors should anticipate that future solicitations and awards will begin incorporating the new clause.  They should also keep an eye out for formal or informal attempts to modify existing contracts to add the clause.  Contractors should assess what actions will be necessary to comply with the corresponding flow-down obligation.  And particularly if DEI programs have not already been assessed in connection with prior executive actions, contractors should work with counsel to review programs and initiatives to ensure that they align with federal courts’ interpretations of antidiscrimination law and the executive actions from the last fourteen months.