Every new federal contract and subcontract must now include a clause prohibiting “racially discriminatory DEI activities” after a 25 April deadline set by Executive Order 14398.
Why it matters
An estimated 70,000 federal contractors and their subcontractors at every tier face a new compliance regime backed by the False Claims Act, which carries treble damages for violations. Companies that certify compliance but maintain prohibited programmes risk liability running into millions of dollars.
What the order requires
President Trump signed Executive Order 14398 on 26 March, giving agencies 30 days to begin inserting the new clause into all covered contracts. The clause requires contractors to certify they do not engage in racially discriminatory DEI activities as defined in the order.
Contractors must furnish all information and reports requested by the contracting agency to verify compliance. Agencies can cancel, terminate, or suspend contracts for non-compliance, and can initiate suspension and debarment proceedings.
The ambiguity problem
Employment lawyers across multiple firms have flagged that the order’s definition of prohibited activities is broad enough to cover a range of common corporate programmes. Mentorship programmes, recruitment pipelines targeting underrepresented groups, and employee resource groups could all fall within scope depending on how agencies interpret the clause.
The order does not define where lawful outreach ends and prohibited discrimination begins.
What comes next
Two more deadlines follow. By 25 May, the Federal Acquisition Regulatory Council must issue deviation and interim guidance on implementation. By 24 July, each agency head must review and report on compliance across their contract portfolio.
Companies that hold federal contracts are auditing their diversity programmes now, with many seeking outside counsel to assess which initiatives must be modified or discontinued before the next enforcement milestone.