On March 26, 2026, President Trump signed Executive Order No. 14398, “Addressing DEI Discrimination by Federal Contractors.” The Order seeks to minimize and eliminate certain DEI practices. Specifically, the Order requires that all federal contracts and “contract-like” instruments include a new clause that prohibits “racially discriminatory DEI activities” and imposes additional compliance and reporting obligations. Violation of the Order may result in penalties for those businesses who are federal contractors, subcontractors, lower-tier contract holders, and parties subject to “contract-like instruments.”
The following frequently asked questions address common questions from employers relating to this Order.
What Does the Order Require?
The Order provides a new mandatory clause for all federal contracts, subcontracts, lower-tier subcontracts, and “contract-like” instruments. Beginning April 24, 2026, contracting agencies were required to include the clause in all new solicitations and resulting contracts. By July 24, 2026, agencies were also required to incorporate the clause into existing covered contracts.
The clause prohibits federal contractors and subcontractors from engaging in “racially discriminatory DEI activities.” The clause also requires each federal contractor, subcontractor, and lower-tier subcontractor to provide the contracting agency with information, reports, and access to records that allow for verification of compliance. Further, federal contractors, subcontractors, and entities subject to “contract-like instruments” must acknowledge that noncompliance may lead to suspension of contracts and disqualification from any future government contracts, and that compliance is “material to the Government’s payment decisions” for purposes of the False Claims Act. The Order also requires that federal contractors inform the relevant executive agency of any subcontractors “known or reasonably knowable” conduct that violates the clause or if any subcontractor sues the federal contractor to challenge the validity of the Order.
What Constitutes “Racially Discriminatory DEI Activities”?
The Order defines “racially discriminatory DEI activities” as disparate treatment of any given person on the basis of race or ethnicity in recruitment, hiring, promotion, contracting, program participation, or allocation or deployment of resources. The Order further defines “program participation” as membership, participation, or access to any training, mentoring, leadership development programs, educational opportunities, clubs, association, or similar opportunities if sponsored or established by the contractor or subcontractor.
What are the Consequences of Non-Compliance with the Order?
The contracting agency may cancel, terminate, or suspend any contract or contract-like instrument held with that contracting entity if the contracting party fails to comply with the Order. The contracting agency may also “suspend or debar” any contractors or subcontractors that fail to comply, meaning they will likely be ineligible for future federal contracts. Further, the Attorney General is authorized to consult with the relevant contracting agency and may bring actions against the contracting entity under the False Claims Act for violation of the Order.
What Businesses are Covered by the Order?
The Order expressly covers any business holding contracts, subcontracts, and lower-tier subcontracts with the federal government. Thus, businesses working with federal contractors should be aware of the risks; working relations with federal contractors may establish a relationship as a subcontractor or “lower-tier subcontractor.”
The Order also covers businesses holding “contract-like instruments.” This term is not clearly defined. However, “contract-like instruments” may include any federal grants that a business receives from the federal government, as well as any other funds, assistance, or benefits that a business receives as a result of an agreement with the federal government. As a result, such businesses should carefully review their practices to determine potential exposure.
What Steps Should Businesses Take Now?
First, businesses should take steps to identify whether they are affected by the Order. Businesses should evaluate whether they receive any grants, assistance, or benefits resulting from an agreement with the federal government, or whether they work closely with another entity that is a contractor or subcontractor for the federal government.
If affected by the Order, businesses should consider taking the following steps:
- Audit existing programs, policies and initiatives to determine any that may be considered “racially discriminatory DEI activities” under the order;
- Review all existing and upcoming federal contracts, subcontracts, or contract-like instruments and ensure that they include the new compliance clause mandated by the Order;
- Assess reporting obligations, including any obligation to report a subcontractor’s violations to the contracting agency;
- Ensure that recordkeeping systems are adequate to demonstrate compliance with the Order if requested by the contracting agency; and
- Monitor the Office of Management and Budget and other agency guidance, which may provide additional detail regarding compliance expectations and enforcement priorities.
Given the breadth of the Order’s definitions and the severity of the penalties associated with noncompliance, affected or potentially affected businesses should act promptly to evaluate their exposure and adjust practices as necessary. Please reach out to any member of the Winthrop & Weinstine’s employment team for assistance in tailoring a compliance strategy to your organization.
July 28, 2026
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