March 27, 2026
President Trump issued a new Executive Order on March 26, 2026, entitled “Addressing DEI Discrimination by Federal Contractors,” and accompanying Fact Sheet . The new EO fundamentally alters the compliance landscape for government contractors. While prior executive orders addressed DEI programs through policy directives, this new EO creates a mandatory, enforceable contract clause that exposes contractors to contract termination, debarment, and False Claims Act (FCA) liability. The Core Requirement: A New Mandatory Contract Clause Within 30 days (by April 25, 2026), agencies must insert a specific clause into all covered contracts, subcontracts, and lower-tier subcontracts. By accepting a contract containing this clause, contractors agree to six binding obligations: 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 to contracting agencies all information and reports, including providing access to books, records, and accounts, for purposes of ascertaining compliance; 3. In the event of the contractor’s or a subcontractor’s noncompliance with this clause, the government 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). Immediate Action to Meet Deadlines Federal contractors face very short deadlines for the implementation of these new obligations, including the inclusion of the new contracting clauses within 30 days, by April 25, 2026. Federal contractors should initiate steps immediately to ensure compliance, including: 1. Audit Internal Programs: Review mentorship programs, ERGs, leadership development tracks, and supplier diversity initiatives for eligibility criteria based on race or ethnicity. 2. Update Subcontractor Agreements: Immediately begin flowing the mandatory clause down to all subcontractors and establish a monitoring system to satisfy the “known or reasonably knowable” reporting standard. 3. Review Invoicing and Certifications: Ensure that no compliance certifications or payment requests are submitted if prohibited activities exist. For More Information and Assistance Register now for FortneyScott’s special webinar, Federal Contractors’ New DEI Obligations that will be held on Tuesday, March 31, 2026 from 12:00 noon to 1:00 ET. This special webinar we will address: - Details of the new EO - The specific prohibition on “racially discriminatory DEI activities” in five key areas - The new requirements that add materiality to the contract payments and the expansion of the basis for False Claims Act exposure - New subcontractor management and reporting duties - Penalties and enforcement, including contract cancellation, debarment from future contracts and FCA actions by DOJ - The detailed implementation deadline for actions, including the new contract clauses, FAR Council guidance and agencies compliance report to the White House For more information on how federal contractors can comply with this new EO, contact your FortneyScott’s attorney or email us at info@fortneyscott.com .