Latest Anti-DEI Executive Order Places New Obligations on Federal Contractor

The following information is from AGC of America:

On March 26, President Trump signed an executive order targeting diversity, equity, and inclusion (DEI) activities by federal contractors. This follows past executive orders, as reported by AGC, in which the Trump administration has targeted DEI programs pointing to increased costs and a commitment to restoring “merit-based” hiring. The new executive order directs federal agencies and firms that contract with them to adopt new contract language certifying that the contractor does not engage in what the Trump administration refers to as “racially discriminatory DEI.”

Specifically, the new contract clause states:

In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

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 all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;
3.  In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor 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 subcontractor 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).

The key impacts of this new language include:

1. Contracting agencies will have expanded access to internal corporate materials to verify compliance.
2. General contractors are responsible for their subcontractor’s compliance and are required to report any instance of non-compliance to the contracting agency.
3. Non-compliance with any aspect of the executive order could mean penalties, including:
   1. Suspension or debarment of the contractor or subcontractor;
   2. Cancelation, termination, or suspension of the contract; or
   3. Liability under the False Claims Act.

AGC is still examining the potential scope of the impact on our members but expect the Trump administration to apply this policy to any project that uses federal money.

Putting aside the issue of DEI, AGC has consistently opposed any policy which equates to mandatory and automatic debarment that eliminates an agency’s discretion to consider remedial measures and mitigating factors, which is adverse to the government’s interest.  

Debarment represents the absolute last, most dramatic measure that the government may take to protect the public interest from a truly unscrupulous contractor that willfully or recklessly violates the law. When a contractor is simply proposed for debarment or debarred in fact, that contractor is immediately banned from bidding or working on government contracts. Debarment is the business equivalent of the death penalty for a contractor that relies upon government contracts to sustain its business. It should only be utilized in the most serious of situations.

The existing federal government-wide debarment and suspension program is designed to protect the public interest by ensuring that the government conducts business only with responsible contractors. The Federal Acquisition Regulation (FAR), which governs federal agency procurements, provides all federal agencies with broad discretion to debar or suspend contractors and subcontractors for a wide range of improper conduct, including commission of any offense indicating a lack of business integrity or business honesty. The FAR further provides that a contractor or subcontractor may be debarred or suspended for any other cause “of so serious or compelling a nature that it affects the present responsibility” of the contractor or subcontractor.

For more information or to offer insights on the potential impact on your firm, please contact Spencer Phillips.