On March 26, 2026, the White House issued an Executive Order titled “Addressing DEI Discrimination by Federal Contractors.” The Order applies to federal contractors and subcontractors at all tiers. It makes compliance with new DEI restrictions a condition of federal contracting.
The Order states that federal contracting must be based on merit and equal treatment. It targets what it calls “racially discriminatory DEI activities,” defined as practices that treat individuals differently based on race or ethnicity rather than merit.
Covered conduct includes hiring, promotion, contracting, vendor selection, and access to programs. Program access is defined broadly and includes training, mentoring, leadership development, educational opportunities, clubs, and similar initiatives.
Significantly, federal agencies must now add a mandatory clause to covered contracts within 30 days. Contractors must agree not to engage in racially discriminatory DEI activities. They must also flow these obligations down to subcontractors. The Order allows agencies to request records to confirm compliance. This may include policies, program descriptions, eligibility criteria, participation information, hiring and promotion materials, and subcontractor oversight documents. Agencies may also request access to books and records relevant to these issues. While the scope of potential requests is broad, the stated purpose is verification of compliance rather than routine audits.
The Order authorizes significant enforcement measures. Agencies may suspend, terminate, or cancel contracts. Contractors may be suspended or debarred from future federal work. Compliance is expressly deemed material to payment, creating potential exposure under the False Claims Act.
The Order does not ban all diversity or inclusion efforts. It focuses on race or ethnicity based differential treatment. It does not provide safe harbors or examples of compliant programs. Agencies are expected to issue guidance and amend federal acquisition regulations.
Additional guidance is expected as the Order is implemented. In the meantime, contractors should assume the focus will be on how decisions are made and documented. Contractors should review existing programs, confirm that access and selection criteria are race neutral, ensure subcontractors are aligned, and be prepared to explain their practices using clear written records if requested.
Federal contractors and subcontractors should act promptly to assess potential risk and align current practices with the Order’s requirements. Barley Snyder is closely monitoring developments and is available to assist with compliance reviews, policy updates, and risk mitigation strategies. If you have questions or would like guidance, please contact Jennifer Craighead Carey or any attorney in the firm’s Employment Practice Group.
