Federal contractors and subcontractors should take careful note of the March 26 Order’s requirements and, in particular, the 30-day implementation deadline for federal agencies to incorporate new terms in government contracts. Failure to comply with these terms may result in the cancellation, termination, or amendment of Federal government contracts, as well as liability under the False Claims Act.
The accompanying Fact Sheet, also issued on March 26, 2026, reiterates the foregoing and further states that some entities, including government contractors, “have attempted to conceal ongoing DEI activities even as the Administration has worked to end them.” The Fact Sheet characterizes the March 26 Order as establishing “strong accountability mechanisms to ensure compliance is genuine and verifiable.” The March 26 Order builds on a series of related executive actions the Administration has taken since January 2025. Together, these actions signify that government contractor and subcontractor compliance will be subject to heightened scrutiny and may portend a more aggressive enforcement risk.
Key provisions
Mandatory contract clause and 30-day deadline
Within 30 days (that is, by April 25, 2026), federal agencies and departments must insert a clause in all contracts and subcontracts—and contract-like instruments—prohibiting “racially discriminatory DEI activities.” Contractors must furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency to ascertain compliance.
Consequences of noncompliance
Government contracts must further provide that, in the event of noncompliance, the contract may be cancelled, terminated, or suspended (in whole or in part), and the contractor or subcontractor may be declared ineligible for further government contracts.
Affirmative obligations
The March 26 Order also imposes affirmative obligations. Contractors and subcontractors must:
- report any subcontractor’s known or reasonably knowable conduct that may violate the contracting requirements to the contracting department or agency
- take any appropriate remedial actions directed by the contracting department or agency relating to the subcontractor
- inform the department or agency if a subcontractor sues the contractor to challenge the validity of these requirements, and
- represent that compliance with these terms is material to the government’s payment decisions, establishing an enforcement mechanism under the False Claims Act.
Definition of “racially discriminatory DEI activities”
The March 26 Order 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 March 26 Order further 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 that are sponsored or established by the contractor or subcontractor.”
It is noteworthy that the March 26 Order is limited to race and ethnicity and does not address gender or other demographic groups.
Further action anticipated
The director of the Office of Management and Budget (OMB) is directed to issue compliance guidance to contracting agencies. OMB, in coordination with the attorney general, the assistant to the president for domestic policy, and the chairman of the Equal Employment Opportunity Commission, must also identify economic sectors that pose a particular risk of engaging in racially discriminatory DEI activities and issue additional guidance for those sectors.
Each agency head must review its implementation of the contractual requirements within 120 days and report to the assistant to the president for domestic policy, with regular reviews thereafter.
Enforcement and False Claims Act
Additionally, the March 26 Order explicitly directs the United States attorney general to consider whether to bring actions under the False Claims Act against violators. The attorney general is also directed to ensure prompt review of “qui tam” actions (which are civil actions brought by private persons), including by rendering a decision on whether to proceed with such actions within the 60-day period prescribed by statute.
The requirement that government contracts state that compliance is “material to the government’s payment decisions” sets the stage for potential whistleblowers to initiate civil actions under the False Claims Act, posing the risk of additional financial exposure for non-compliance beyond cancellation of the commercial agreement.
Key differences from the January 2025 executive orders
The March 26 Order differs from the January 2025 DEI-related executive orders in several notable respects:
- Mandatory contract terms. The March 26 Order requires that federal contractor and subcontractor agreements include specific contract language, with defined terms with the prior executive orders addressed DEI programs through policy directives. This is a meaningful shift, as the March 26 Order creates a new mandatory enforceable contract clause that exposes contractors to contract termination, debarment and False Claims Act liability.
- Defined prohibited conduct. It provides a concrete definition of “racially discriminatory DEI” activities that is not limited to “illegal DEI,” the term referenced (but not defined) in the January 21 executive order.
- Access to books and records. The March 26 Order mandates that contractors provide access to their books and records to the contracting agency upon request, enabling compliance assessments.
- False Claims Act enforcement. It contains an explicit directive to the Department of Justice to pursue False Claims Act enforcement, expressly tying compliance to the government’s payment decisions for False Claims Act purposes, a provision that represents a significant expansion of potential liability for noncompliance.
Practical next steps
Given the 30-day compliance deadline, contractors could see new language appearing in government contracts as early as April 2026. Although the March 26 Order does not expressly address retroactive application, it references the cancellation, termination, or suspension of ongoing contracts for noncompliance, and its directive that agencies ensure that contracts and contract-like instruments include the required provisions, raises the question of whether agencies may seek to modify existing contracts to incorporate the new provisions (to the extent that updates are not self-executing).
Federal contractors and subcontractors should carefully reexamine their workforce programs and initiatives to determine whether such programs could create exposure under the March 26 Order or through private challenges to such programs and initiatives by activist groups and other litigants.
Contractors should also evaluate their current contract portfolios accordingly and incorporate the required language into subcontracts as necessary. Contractors should review their audit and monitoring systems to ensure they can satisfy the March 26 Order’s standards. The explicit linkage to False Claims Act liability and the access-to-books-and-records provisions underscore the importance of prompt action.
Several open questions remain, including whether the definition of “racially discriminatory DEI activities” could encompass programs that are facially neutral but have diversity-related objectives, and how the access-to-records provisions will interact with contractors’ existing audit procedures and confidentiality obligations. Contractors should monitor agency guidance and FAR amendments for further clarity on these issues and consult with legal counsel as needed.
Footnotes
1. See Exec. Order No. 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing, 90 Fed. Reg. 8339 (Jan. 20, 2025) and Exec. Order No. 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, 90 Fed. Reg. 8633 (Jan. 21, 2025) and Exec. Order No. 11246, 30 Fed. Reg. 12319 (Sept. 24, 1965). For more information on DEI practices and trends following the January 2025 executive orders, see our article, Evolving trends in human capital practices and disclosures in our 23rd annual Corporate Governance & Executive Compensation Survey.
2. False Claims Act, 31 U.S.C. §§ 3729–3733 (specifically id. § 3729(b)(4)).
3. See 31 U.S.C. § 3730(b)(2).
