Most notably, the final rule eliminates several requirements that have been central to federal contractors’ Section 503 compliance programs since 2013. OFCCP is rescinding the requirement that contractors invite applicants and employees to self-identify as individuals with disabilities, eliminating the related Form CC-305 and data-collection requirements, and removing the 7% utilization goal and associated utilization analyses. OFCCP is also removing references to now-revoked Executive Order 11246 and making related technical and procedural changes.

The changes substantially reduce contractors’ quantitative compliance obligations under Section 503, but they do not eliminate Section 503 affirmative action or nondiscrimination obligations. Covered contractors will continue to be required to take affirmative action to employ and advance qualified individuals with disabilities, maintain applicable affirmative action programs (“AAPs”), conduct and evaluate outreach and recruitment efforts, provide reasonable accommodations, and comply with other remaining Section 503 requirements.

Key Takeaways:

• Mandatory disability self-identification is eliminated. OFCCP is eliminating the requirement that contractors invite applicants and employees to self-identify as individuals with disabilities. OFCCP takes the position that employer-initiated disability inquiries required by the existing regulation conflict with the Americans with Disabilities Act (“ADA”), including the ADA’s prohibition on pre-offer disability inquiries and its restrictions on inquiries of current employees.
• The 7% utilization goal is eliminated. OFCCP is eliminating the 7% utilization goal for individuals with disabilities and the corresponding annual utilization analyses. OFCCP concluded that the utilization framework is untenable without disability-status data and is also dependent on job groups established under the now-revoked Executive Order 11246.
• Related quantitative data collection is also eliminated. The final rule removes the requirement that contractors document and maintain specific computations or comparisons pertaining to applicants and hires with disabilities. Contractors also will not be required to consider quantitative data regarding referrals, applicants, or hires with disabilities when evaluating the effectiveness of their outreach efforts or AAPs.
• Outreach and AAP obligations remain. Contractors subject to the AAP requirements must still annually evaluate their disability outreach and recruitment efforts, document the criteria used to evaluate those efforts, and implement alternative efforts if their overall outreach is ineffective. OFCCP explains that contractors may use non-quantitative measures, such as reviewing the accessibility of outreach and hiring materials, to assess effectiveness.
• Reasonable accommodation obligations are unchanged. OFCCP emphasizes that the final rule does not alter contractors’ reasonable accommodation requirements. Contractors remain obligated to reasonably accommodate the known physical or mental limitations of otherwise qualified individuals with disabilities, absent undue hardship.
• The basic Section 503 coverage threshold is now $20,000. The final rule updates the regulations to reflect the inflation-adjusted threshold that became effective October 1, 2025. The general Section 503 requirements therefore apply to covered government contracts and subcontracts exceeding $20,000, while the existing AAP threshold remains applicable to contractors with 50 or more employees and a federal contract or subcontract of $50,000 or more.

More Detail:

Why OFCCP Is Changing Course

The final rule represents a substantial reversal of OFCCP’s 2013 approach to Section 503 compliance. The 2013 regulations introduced the 7% utilization goal, required contractors to analyze their utilization of individuals with disabilities, expanded mandatory invitations to self-identify, and created additional disability-related data-collection requirements.

OFCCP now concludes that key aspects of that framework conflict with the ADA. In the agency’s view, requiring a contractor to “invite” an applicant to voluntarily disclose disability status is an employer-initiated disability inquiry. OFCCP reasons that the ADA regulates the employer’s act of asking—not merely whether an applicant or employee is required to answer—and therefore concludes that characterizing the response as voluntary does not resolve the statutory issue.

The agency similarly concludes that the utilization goal cannot practically be maintained after eliminating mandatory disability inquiries because measuring utilization depends on knowing which applicants and employees have disabilities. OFCCP also notes that the existing utilization analysis relies on job groups established under Executive Order 11246, which was revoked in January 2025.

What Remains of Section 503 Affirmative Action

The final rule does not eliminate contractors’ obligation to take affirmative action with respect to individuals with disabilities. OFCCP specifically notes that the regulations’ nondiscrimination requirements, recordkeeping provisions, outreach requirements, complaint procedures, and other aspects of the Section 503 program remain in place.

Instead, OFCCP envisions a less data-dependent model of affirmative action. The preamble identifies measures contractors can take without soliciting disability status, including reviewing job descriptions and qualification standards for unnecessary barriers, partnering with disability employment organizations, improving the accessibility of online application and hiring systems, and providing applicants with clear information about requesting reasonable accommodations.

Contractors subject to the AAP requirements also retain their obligation to maintain an audit and reporting system designed to measure the effectiveness of the AAP. But OFCCP clarifies that contractors no longer need disability self-identification data to satisfy that obligation and may instead consider measures such as actions taken in response to accommodation requests or audits of workplace accessibility.

Contractors Face an Important Question About Voluntary Data Collection

One potentially significant issue is whether—and under what circumstances—contractors may continue collecting disability information after the final rule takes effect. OFCCP makes clear that it is no longer requiring contractors to make disability-status inquiries. At the same time, the agency states that the final rule does not prohibit a contractor from exercising its own legal and business judgment about making such inquiries where the contractor concludes they are permissible under the ADA and its implementing regulations.

That distinction may warrant careful consideration by contractors that have embedded disability self-identification into broader workforce analytics, recruiting, or diversity and inclusion processes. OFCCP expressly cautions that contractors choosing to continue utilization analyses or disability data collection on their own initiative should ensure that those practices comply with all applicable laws and regulations, including the ADA.

What Federal Contractors Should Do Now

With the effective date approaching, federal contractors should consider reviewing their Section 503 compliance infrastructure, including applicant tracking and HR information systems, onboarding and employee self-identification processes, references to Form CC-305, AAP templates and procedures, utilization analyses, outreach-effectiveness methodologies, and related policies and training.

Contractors should take care, however, not to treat the final rule as eliminating disability affirmative action obligations altogether. The rule removes several of the most visible quantitative requirements of the 2013 regulations, but the underlying statutory obligation to take affirmative action and the regulations’ remaining nondiscrimination, outreach, accommodation, AAP, audit, and enforcement provisions continue to apply.

The final rule is scheduled for publication on August 21, 2026. Most amendments will take effect 30 days after publication, with the removal of Part 60-30 taking effect 120 days after publication.

Key Takeaways: Beginning January 1, 2027, before being awarded a county or municipal contract or grant, a potential recipient will be required to certify that it does not and will not use county or municipal funds in requiring employees, contractors, volunteers, vendors, or agents to ascribe to, study, or be instructed using materials relating to DEI as defined in the statute.

The law defines “diversity, equity, and inclusion” to mean any effort to (1) manipulate or otherwise influence the composition of employees with reference to race, color, sex, ethnicity, gender identity, or sexual orientation (other than compliance with antidiscrimination laws); (2) promote or provide preferential treatment or special benefits to a person or group based on those characteristics; or (3) promote or adopt training, programming, or activities designed or implemented with reference to those characteristics.

Importantly, the term “diversity, equity, and inclusion” does not include the use of equal opportunity or equal employment opportunity materials designed to inform a person about the prohibition against discrimination based on protected status under state or federal law. In other words, compliance-oriented anti-discrimination training remains permissible.

The statute’s enforcement mechanism allows any resident of a county or municipality to bring an action in circuit court against the local government for violations, and authorizes courts to award declaratory and injunctive relief, damages, and costs.

More Detail: The new law prohibits local governments from funding or promoting DEI, directly or indirectly, or taking any official action as it relates to DEI. Any existing DEI-related ordinances, resolutions, programs, or policies are declared void. Local governments are also prohibited from expending any funds to establish or staff a DEI office or to engage any person to serve as a DEI officer.

In accordance with the provisions of the new law, before receiving a county or municipal contract or grant, the potential recipient will have to certify that it does not and will not use county or municipal funds in requiring its employees, contractors, volunteers, vendors, or agents to ascribe to, study, or be instructed using DEI-related materials. The certification is limited to county or municipal funds – it does not on its face prohibit maintaining internal DEI programs funded entirely by private dollars, but companies should exercise caution in how programs funded by different sources are structured. Companies should also expect that future local government contracts may contain express provisions reflecting these restrictions.

The law does not prohibit actions required for compliance with state or federal law, and equal opportunity materials designed to inform individuals about prohibitions against discrimination remain are excluded – meaning such materials can be paid for using county or municipal funds. Violations by public officials constitute misfeasance or malfeasance in office, and residents may bring circuit court actions with courts authorized to award declaratory and injunctive relief, damages, and costs.

Companies doing business with Florida counties and municipalities should review mandatory training programs for DEI-related content, as well as broader policies, programs, and initiatives that may be supported by local government funds. They should assess how public funds are used across their operations, including workforce training, grant-funded programming, and subcontractor activities; prepare internal processes to support the required pre-award certification; and monitor existing contract portfolios for renewal dates that will trigger the new requirements after January 1, 2027.

Key Takeaway:  The AI Act has been a source of concern for employers (and other entities utilizing AI) since it was enacted in 2024.  It is the most comprehensive AI law in the country and, if it goes into effect without changes, will impose a host of onerous requirements on employers, including implementation of risk management programs, impact assessments, annual reviews, and disclosures regarding algorithmic discrimination.

Although there are efforts to amend the AI Act and delay its effective date, the AI Act’s effective date currently is June 30, 2026.  As such, employers need to be preparing for the AI Act as though it will be implemented on June 30, 2026, but watching developments – such as the xAI litigation – in case they relieve employers of need to comply with the AI Act’s onerous provisions.

More Detail:  While there are efforts to amend and extend the effective date of the AI Act, the xAI lawsuit (filed on April 9, 2026) reflects a growing concern that such efforts may not succeed before the law goes into effect.  In its lawsuit, xAI seeks, among other things, a preliminary injunction, contending the law violates the U.S. Constitution.

The US Government’s intervention appears to be the first time it has sought to invalidate a state AI law since the President Trump issued Executive Order 14365 (“Order”), which sets forth a process by which such laws will be discouraged, challenged, and potentially preempted.  The Department of Justice’s press release raises the policy concerns articulated in the Order, stating that “America’s success in the AI race will depend on removing barriers to innovation and adoption across sectors.” 

Notably, in challenging the law, the Government invokes the Equal Protection Clause of the Fourteenth Amendment, characterizing the law as “requir[ing] AI companies to infect their products with woke DEI ideology” and declaring “[t]he Justice Department will not stand on the sidelines while states such as Colorado coerce our nation’s technological innovators into producing harmful products that advance a radical, far left worldview at odds with the Constitution.”

Specifically, the Government contends the law “violates the Equal Protection Clause because it compels AI developers and deployers to discriminate based on race, sex, religion, or other protected characteristics. By requiring developers and deployers to prevent the ‘risk’ of disparate outcomes based on demographic characteristics, SB24-205 effectively requires developers and deployers to expressly use demographic characteristics, including race, sex, and religion when building and using algorithmic model.”  

The Government also argues AI Act violates the Equal Protection Clause because it “expressly authorizes intentional differential treatment” in so far as it: (1) “authorizes developers and deployers to engage in what would otherwise be illegal ‘algorithmic discrimination’ if the purpose is ‘to increase diversity’ (whatever that means),” and (2) “excepts from the definition of ‘algorithmic discrimination’ the offer, license, or use of AI to ‘redress historical discrimination.’”  

We will continue to monitor developments in this case and related to the AI Act.

Key Takeaway: As discussed in a prior post, the Order seeks to restrict contractors’ and subcontractors’ diversity, equity, and inclusion (“DEI”) efforts, imposing numerous restrictions and risks on government contractors and subcontractors, and the Administration is moving quickly to implement the Order’s requirements. The lawsuit seeks to have the Order deemed unconstitutional or otherwise invalid and, if successful, could result in the elimination of its requirements.  Employers should carefully track how the court handles this challenge, but until the court takes any action impacting the Order, it remains in effect and contractors should continue to prepare for its implementation.

More details: The Order requires federal agencies, within 30 days of its issuance, to “ensure that contracts and contract-like instruments, including contractors’ subcontracts and subcontractors’ lower-tier subcontracts, include” a clause addressing “racially discriminatory DEI activities.”  The Federal Acquisition Regulatory Council (the “FAR Council”) has already taken steps to implement the Order, issuing a new Federal Acquisition Regulation (“FAR”) deviation for inclusion in new contracts starting April 24, 2026, and instructing agencies to “make every effort” to have the clause added to existing contract by July 24, 2026.

As discussed in more detail in our prior post, the new FAR required by the Order prohibits contractors and subcontractors from engaging in “racially discriminatory DEI activities,” defined 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 Order directs federal agencies to enforce the new clause through contract cancellation, termination, or suspension, debarment, and False Claims Act (“FCA”) suits.  Although the government has already been active in using the FCA to police DEI efforts it deems to violate federal anti-discrimination laws, the Order provides the government more options and potentially impacts a larger swath of DEI-related efforts.

The Maryland district court litigation was brought by a group of university professors, contractors, and subcontractors, including the American Association of University Professors and the National Association of Minority Contractors. They are represented by Democracy Forward, the legal advocacy group that unsuccessfully challenged Trump’s 2025 executive orders targeting DEI in the private sector. In February 2026, the Fourth Circuit vacated the district court’s injunction blocking two provisions of the President’s executive orders, finding the provisions, as written, did not constitute facial violations of plaintiffs’ First and Fifth Amendment rights.

Here, the plaintiffs seek preliminary and permanent injunctions prohibiting federal implementation of the Order.  Plaintiffs bring three claims:

In their first count, they contend the Order violates their First Amendment free speech and free association rights, because the Order “[o]n its face, ... chills and aims to censor Plaintiffs’ protected expression and association that concerns race, ethnicity, diversity, equity, or inclusion.”  The plaintiffs contend that the Order is overbroad, impacting protected speech, and forces them “to either chill their own constitutionally protected expression and association and maintain their federal contracts and subcontracts, exercise their First Amendment rights and lose access to federal contracts and subcontracts, and partnerships with federal contractors and subcontractors, or attempt to do both and face the prospect of civil and criminal penalties.”  They argue the Order “is not justified by a substantial or compelling government interest and is not narrowly tailored to serve any such interest, nor is it substantially related to a sufficiently important governmental interest.”

In their second count, they allege the Order violates the First Amendment’s prohibitions on the government imposing content-based restrictions on speech.  They contend, among other things, that “[b]y prohibiting federal contractors and subcontractors from engaging in expression that the Order deems ‘racially discriminatory DEI activities,’ the ... Order discriminates against speech and association that relates to race, ethnicity, diversity, equity, and inclusion,” and “[b]y imposing a requirement that contractors agree that neither they, nor their subcontractors or employees, ‘engage in’ any so-called ‘racially discriminatory DEI activities,’ the ... Order conditions the receipt of federal funds on contractors agreeing not to engage in expression or association that is protected by the First Amendment.”

In their third count, Plaintiffs contend that the Order’s FCA-related components exceed the President’s authority under the Procurement Act, which they claim limits the President’s ability to issue procurement-related Executive Orders to those that are “necessary to carry out” the purposes of the Procurement Act, which must have a close nexus to the act’s purpose of providing “an economical and efficient system” for procurement.  Plaintiffs argue “no ‘close nexus’ exists between the FCA provision [in the Order] and the Procurement Act,” and cite to the lack of “factual findings” regarding such a nexus and that the Order does not “make any effort to explain why the threat of FCA liability is necessary to insulate the government from any costs that may be associated with the conduct described in the Order’s definitions.”

We will continue to monitor National Association of Diversity Officers in Higher Education v. Trump, No. 8:26-cv-01532, and other developments in the space.

Key Takeaways:  As we discussed in a prior post, the Order requires government agencies to include a new clause in federal contracts barring federal contractors and subcontractors from engaging in “racially discriminatory DEI activities.”  Several aspects of the Order anticipate the provision of information from contractors to the government; specifically, responses to information requests related to compliance, reporting on subcontractors’ non-compliance, and informing contracting officers of efforts by the subcontractor to challenge the clause.

More Details: As noted above, the PRA request anticipates over 6,000 contracts awarded will be subject to a submission requirement annually.  The basis for this estimate is unclear, as is what is anticipated by “require[d] submission of information.”  There are three different information submission obligations under the Order; two address reporting on subcontractor actions, which are wholly dependent on whether a subcontractor violates or challenges the new contract clause and the contractor’s knowledge of the violating conduct.  The third, and the one that has garnered the most attention (and questions), is the following requirement:

“The Contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the Contracting Officer, for purposes of ascertaining compliance with this clause.”

Since the issuance of the Order, contractors have wondered whether this provision signals the government will request such compliance information on a systematic basis.  Some have read the PRA request’s estimate to be an indication that the government intends to engage in some form of “auditing” for compliance with the new clause.  That is far from clear from the PRA request, which does not state that an audit process is part of its estimate. 

Further, the request estimates the burden of information submissions in response to government inquiries will be one hour.  This suggests that any “auditing” would be minimal, though the government notoriously underestimates the burden information requests place on submitters and the FAR Council estimates it will take the government sixteen hours to review the submitted materials (suggesting the materials submitted are expected to be voluminous).

For now, contractors should continue to monitor developments and be aware that they could be subject to contracting officer requests for “books, records and accounts” relating to compliance with the new clause once it is incorporated into one of their contracts.  For more on the new clause and what contractors should be doing now to prepare, please see our prior post on the Order, available here.

Key Takeaways:  As we discussed in a prior post, the Order requires government agencies to include a new clause in federal contracts barring federal contractors and subcontractors from engaging in “racially discriminatory DEI activities.” The FAR Council’s guidance is the first step in implementing the Order’s requirement.  In addition to issuing new FAR deviation text containing the new prohibitions, the FAR Council has provided guidance as to how agencies should implement it. 

Notable components in the guidance:

• Agencies are instructed not only to include the new clause in “new solicitations and resulting contracts” beginning April 24, 2026, but also to insert the clause into certain existing contracts. 
• The guidance anticipates aggressive implementation of the new clause into existing contracts.  Contracting officers are required to “make every effort to bilaterally modify existing contracts by July 24, 2026.”  If the “contractor refuses to agree to a bilateral modification, the contracting officer should consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience.”
• The new clause will only apply to contracts where the place of delivery or performance is in the United States.
• Certain components of the Order and new clause will not be implemented until the Office of Management and Budget approves a Paperwork Reduction Act request related to information gathering.  These include the contractors’ obligations to respond to information requests related to compliance, reporting on subcontractors’ non-compliance, and informing contracting officers of efforts by the subcontractor to challenge the clause.

Accordingly, contractors need to be aware that in the coming months they will be seeing requests to modify their existing contracts to include the new clause.  As such, they must take steps now to understand the full scope of the new requirement and ensure they are prepared.  As discussed in our prior post, these efforts should include, with the guidance of legal counsel:

• Reviewing existing DEI-related programs and policies (particularly those related to race and ethnicity);
• Taking steps to ensure when a contract modification request is received it is routed to the appropriate personnel;
• Being aware of the False Claims Act (“FCA”) component of the new clause and taking steps to limit FCA exposure; and
• Assessing how to manage subcontractors and subcontractor reporting obligations.

More Details: The Order, issued on March 26, 2026, requires federal agencies to include a clause prohibiting contractors from engaging in “racially discriminatory DEI activities,” and instructs the FAR Council to amend the FAR to include the Clause “in federal procurement, solicitations, and contracts, and to remove any conflicting provisions in the FAR.”  It also instructs the FAR Council to, within 60 days of the date of the Order, “issue deviation and interim guidance ... regarding agency implementation of the clause ... before completion of the amendments” to the FAR.  The FAR Council’s memorandum here complies with that instruction less than 30 days after its issuance.

The Council has issued model deviation text for FAR 52.222-90, which follows the text required by the Order, while also adding a “flow down” clause requiring contractors to include the “substance of [FAR 52.222-90] ... in subcontractors at any tier ... for which the place of delivery or performance is in the United States.”  In implementing the new clause, agencies can only deviate from the model FAR text if permitted by existing statutory direction or with approval of the FAR Council.

The guidance provides for expedited implementation of the new contract clause.  Agencies are required to begin using the new clause in new solicitations and resulting contracts by April 24, 2026, where the contracts at issue are “valued over the micro-purchase threshold [currently $15,000] ... and for which the place of delivery or performance is in the United States.” 

In addition, agencies must modify existing contracts “valued over the micro-purchase threshold ... for which the place of delivery or performance is in the United States” by July 24, 2026, though agencies have discretion with respect to modifying existing contracts set to expire by December 31, 2026.  Contracting officers must “make every effort to bilaterally modify existing contracts by July 24, 2026.”  If the “contractor refuses to agree to a bilateral modification, the contracting officer should consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience.”

Notably, certain components of the Order and new clause will not be implemented until the Office of Management and Budget approves a Paperwork Reduction Act request related to information gathering.  These include the contractors’ obligations to respond to information requests related to compliance, reporting on subcontractors’ non-compliance, and informing contracting officers of efforts by the subcontractor to challenge the clause.  These provisions will be implemented once the request is approved.

With this guidance, contractors are now on notice that they will soon be asked to agree to include the ban on “racially discriminatory DEI activities” in their existing contracts.  Contractors should be aware that the Order is currently being challenged in a Maryland federal court lawsuit on First Amendment grounds, and any decisions there could impact this new FAR.  However, as discussed above, contractors should begin taking action now to ensure they are prepared for the new requirement.

We will continue to monitor and report on developments in this space.

Key Takeaways: Since President Trump took office in January 2025, we have been alerting government contractors of the Administration’s efforts to target DEI in the private sector and its threat to use the FCA to stop such practices. The settlement with IBM demonstrates that the Administration is actively investigating government contractors’ DEI practices, and this settlement appears to be just the tip of the iceberg. 

Although details of the investigation are limited, there are interesting aspects that can be gleaned from the published settlement agreement (in addition to the monetary component). 

• First, the practices the DOJ contends violated federal law include many that were prevalent in corporate America, at least prior to the Second Trump Administration. They include mentorship programs and the use of “diverse slates” and “diverse sourcing” in recruitment and hiring processes.
• Second, the practices investigated by the DOJ extend back to 2019, suggesting that contractors’ recent efforts to align their practices with the current Administration’s view on “legal” DEI may not insulate them fully from FCA investigations and liability. 
• Third, there is no indication that IBM signed a contract including the DEI-related certifications introduced by President Trump in 2025 (discussed below). Rather, the Administration appears to take the view that existing Federal Acquisition Regulations and law are sufficient to render non-compliance with federal anti-discrimination laws a basis for FCA liability.

To the extent they were not already, contractors should be aware of this active area of enforcement and take steps to minimize the risk through privileged audits of their DEI and related practices. Indeed, the recently issued “Addressing DEI Discrimination by Federal Contractors” Executive Order adds additional risk for contractors in this space, as discussed in our prior post, and merits a fresh review of contractors’ practices even if they have already conducted a review of their DEI and related initiatives. 

More Detail: In January 2025, President Trump issued Executive Order 14173 (“EO 14173”), instructing agency heads to, among other things, include “in every contractor or grant award” the following provisions: 

“(A)  A term requiring the contractual counterparty or grant recipient to agree that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of section 3729(b)(4) of title 31, United States Code; and

(B)  A term requiring such counterparty or recipient to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.”

In so doing, the Trump Administration signaled to federal government contractors that it viewed DEI programs that violated federal anti-discrimination laws to be a basis for FCA liability. 

Then, on May 19, 2025, then-Deputy Attorney General Todd Blanche issued a memorandum establishing the Department of Justice’s “Civil Rights Fraud Initiative” (the “Initiative”). The May 19 memorandum explained that the Initiative “will utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws,” led by a team of attorneys from the DOJ’s Civil Rights Division and Civil Division’s Fraud Section who will “aggressively pursue this work together,” while consulting with the DOJ’s Criminal Division and other federal agencies. 

The IBM settlement is the first public resolution of an investigation undertaken pursuant to the Initiative. As detailed in the settlement agreement reached with IBM, the DOJ contends that IBM knowingly submitted false claims and knowingly made false statements to the United States because it “certified compliance in its federal contracts with [anti-discrimination requirements as set forth in Title VII of the Civil Rights Act of 1964, as incorporated into its federal contracts, and the Federal Acquisition Regulation, including at FAR clause 52.222-26] while knowingly maintaining practices ... that the United States contends discriminated against employees during employment and applicants for employment because of race, color, national origin, or sex, and failed to treat employees during employment without regard to race, color, national origin, or sex.”

The practices at issue (“the Covered Conduct”) included:

1. Modifications or adjustments to pay, bonus, or other compensation that caused employees to take race, color, national origin, or sex into account when making employment decisions, including a diversity modifier that tied bonus compensation to achieving demographic targets;
2. Taking race, color, national origin, or sex into account as part of decisions to hire, transfer, or promote through the use of “diverse interview slates,” “diverse sourcing,” and other related employment practices, including by altering interview eligibility criteria based on race, color, national origin, or sex;
3. Developing race and sex demographic goals for business units and taking race, color, national origin, or sex into account when making employment decisions to achieve progress towards those demographic goals; [and]
4. Offering certain training, partnerships, mentoring, leadership development programs, educational opportunities or resources, and/or similar opportunities only to certain employees, with eligibility, participation, access or admission limited on the basis of race, color, national origin, or sex.

The Covered Conduct occurred as far back as January 1, 2019. IBM denies that it engaged in the Covered Conduct.

As part of the settlement, IBM will pay $17,077,043, inclusive of civil penalties, in return for the DOJ releasing it from any civil claim or administrative monetary claim for the Covered Conduct under the FCA, the Program Fraud Civil Remedies Act, and common law theories of breach of contract, payment by mistake, unjust enrichment, or fraud. Approximately $8.2 million of this sum is restitution. 

Notably, the DOJ, in reaching the settlement, credited IBM for cooperating with the investigation. The cooperation included: “disclosing facts early that were relevant to the government’s investigation and gathered during its independent investigation; providing information to assist in the determination of damages and penalties arising from the alleged conduct; and taking voluntary remedial measures, including the termination and/or modification of various programs, policies, or other activities described in the Covered Conduct.”

Contractors can expect more activity in this space. As Acting Attorney General Todd Blanche stated in announcing the settlement, the DOJ “launched the Civil Rights Fraud Initiative to root out this misconduct, hold offenders accountable, and end this practice for good.”  In the same announcement, Associate Attorney General Stanley Woodward stated “[t]oday’s settlement proves this Department’s commitment to ensure companies are not using taxpayer funded work to further woke unconstitutional practices in American workplaces.” 

In light of this development, Contractors should (re)review their DEI and related policies and practices and revise accordingly, with the help of counsel to ensure privilege.

We will continue to monitor developments in this space.

Key Takeaway:  The proposed expanded certification continues the Administration’s effort to utilize federal spending to address its view that diversity, equity and inclusion (“DEI”) programs violate federal law.  By including the new certification language in the SAM registration process, the Administration is seeking to ensure federal assistance recipients review their DEI and related programs and make necessary modifications to comply with federal law, as false certifications risk criminal and civil penalties.

More Detail:

Applicants and recipients of Federal financial assistance must register in SAM and maintain an active account.  The proposed revision to the registration form would expand the “Financial Assistance General Certifications and Representations” required to register with SAM to include a provision certifying compliance with Federal antidiscrimination laws, similar to that found in other Trump Administration guidance.  

Under the proposed revision, registering entities would have to certify and represent that their organization “[w]ill comply with the US Constitution, all Federal laws, and relevant executive orders prohibiting unlawful discrimination on the basis of race or color in the administration of federally funded programs.”  The provision specifies that antidiscrimination laws “apply to programs or initiatives that involve discriminatory practices, including those labeled as Diversity, Equity, and Inclusion (DEI) or ‘diversity, equity, inclusion, and accessibility’ (DEIA) programs.”

The certification includes five examples of practices that “may violate applicable Federal anti-discrimination laws”:  

• Granting preferential treatment based on race or color, such as race-based scholarships or programs, preferential hiring or promotion practices, or access to facilities or resources based on race or ethnicity, including through the use of “cultural competence” requirements, “overcoming obstacles” narratives, or “diversity statements;”
• Segregation based on race or color, such as race-based training sessions, segregation in facilities or resources, or implicit segregation through program eligibility;
• Other unlawful use of race or color as criteria, such as race-based “diverse slate” policies in hiring, race-based selection for contracts, or race-based program participation or resource allocation;
• Training programs that stereotype, exclude, or single out individuals based on protected characteristics or create a hostile environment; or
• Retaliation by taking adverse actions against employees, participants, or beneficiaries because they engage in protected activities related to opposing DEI practices they reasonably believe violate federal antidiscrimination laws. Protected activities include raising concerns or filing complaints about, or objecting to or refusing to participate in, discriminatory programs, trainings, or policies.

This change aligns with prior Trump Administration initiatives targeting DEI, including Executive Order 14173 “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” and the Department of Justice’s “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination.”

The proposed revision includes two other new certification provisions. The first requires recipients to certify that they “[w]ill not knowingly bring or attempt to bring to the United States, transport, conceal, harbor, shield, hire, or recruit for a fee an illegal alien,” nor will they “induce an alien to enter or reside in the United States with reckless disregard of the fact that the alien is illegal.” The second is a promise they “[w]ill not fund, subsidize, or facilitate violence, terrorism, or other illegal activities that threaten public safety or national security.”

The individual completing the new certification will have to “attest[] to the accuracy of the certifications and representations” in the form, and acknowledge that they “may be subject to criminal prosecution under Section 1001, Title 18 of the United States Code or civil liability under the False Claims Act if [they] ... provid[e] false, fictitious, or fraudulent information to the U.S. Government.” 

Recipients of federal aid need to be aware of this new requirement and ensure that they will be able to provide the necessary certification and comply with the representations made therein.  This includes taking steps now to assess their DEI and other related programs to ensure compliance with federal law, ideally with the assistance of counsel to ensure the ability to assert privilege.

We will continue to monitor developments in this space.

As the Administration’s Fact Sheet regarding the Order notes, the Order is the latest in a series of actions the Trump Administration has taken to curtail what it views as illegal diversity, equity and inclusion (“DEI”) initiatives.

Key Takeaways: At first blush, the Order appears to do little more than formalize previous efforts to address contractors’ DEI activities, primarily Executive Order 14173 (“EO 14173”).  EO 14173 provides that federal contractors and grantees are required to certify that they did “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws,” and to “agree that ... compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of” the FCA. 

However, as detailed below, while the Order mirrors the concepts in EO 14173 and operationalizes and standardizes what seemed to be an inconsistent and uneven implementation effort regarding EO 14173, it also builds upon and increases the risks for federal government contractors who maintain race or ethnicity-related programs in several ways. 

1. While the Order is narrower than EO 14173 in that applies only to race and ethnicity DEI programs (as opposed to all federally protected characteristics), EO 14173 did not define the term “DEI,” leaving uncertainty as to what programs were covered. Further, EO 14173 only barred DEI programs that violated “Federal anti-discrimination laws” – a standard open to interpretation and largely limited to employment and, with respect to race, contracting activities. The Order, by defining prohibited “racially discriminatory DEI activities,” does not carry forth this ambiguity, and it also expands the scope of activities that had been understood to be covered by EO 14173.  The legality of the program is removed from the equation. All activities that treat individuals differently based on race or ethnicity are barred, and the prohibited activities extend beyond employment and contracting to include “program participation” and “allocation or deployment of an entity’s resources.”
2. The Order expands the scope of the DEI prohibition by implicating subcontractors, who were not addressed in EO 14173. While the Clause does not contain a “flow down” provision (though one may be added when the Clause is made part of the Federal Acquisition Regulation), it subjects contractors to obligations and consequences related to their subcontractors’ activities. Specifically, contractors may lose contracts or be debarred for their subcontractors’ “racially discriminatory DEI activities,” are required to report any subcontractor violations of the Clause, and must inform the Government if a subcontractor sues the contractor over actions related to the Clause. 
3. While EO 14173 focused on FCA liability, the Order expands the consequences for contractors.  The Order makes clear that violations of the Clause can result in cancellation, suspension or termination of contracts, and contractor debarment – consequences not addressed in EO 14173. In addition, the Order instructs the Attorney General to prioritize consideration of FCA claims related to violations of the Clause.

So, while contractors were already subject to heightened risks regarding DEI initiatives prior to the Order, those risks, once they have contracts containing the Clause, will expand. As discussed below, contractors should take steps now to address the Order and the likelihood they will be subject to contracts with the Clause in the coming months.

Deeper Dive:The Order has two main components: (1) a new federal contract provision addressing “racially discriminatory DEI activities”; and (2) guidance regarding enforcement of the Clause.

The “Racially Discriminatory DEI Activities” Clause

The Order requires federal agencies, within 30 days of its issuance, to the extent permitted by law, to “ensure that contracts and contract-like instruments, including contractors’ subcontracts and subcontractors’ lower-tier subcontracts, include” a clause addressing “racially discriminatory DEI activities.” “Racially discriminatory DEI activities” is defined 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.” 

• Limited to Race and Ethnicity. Notably, as the term suggests, the activities regulated are limited to those based on race and ethnicity, and not other protected characteristics. Accordingly, DEI activities based on sex, gender identity and expression, national origin, and other protected characteristics that have been the focus of other Administration initiatives are not covered. 
• Limited to Disparate Treatment. Further, consistent with the Administration’s articulated view, the targeted activities are those involving “disparate treatment,” and the Order does not address “disparate impact.” In other words, the Order addresses programs that intentionally discriminate on the basis of race and ethnicity, and not those that may have an unintended race or ethnicity-based impact. Even so, contractors should be aware that the Administration has warned against using facially-neutral “proxies” to mask efforts aimed at race- or ethnicity-based decision-making.
• Broad Scope of Covered Activities. The activities covered extend beyond employment-related actions, such as hiring and promotions, to contracting, “program participation” and “allocation of resources.” “Program participation” is defined 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.” 

The Clause to be included in federal contracts is as follows:

“In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

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 all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;”
   • This broad provision contemplates that agencies may seek information regarding compliance, which contractors will be contractually obligated to provide.  Whether that becomes a common practice remains to be seen.
3. “In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this 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”
   • Items 3, 4 and 5 impose requirements and consequences on contractors for their subcontractors’ violations of the clause. First, item 3 makes clear that the contractor can be held responsible for its subcontractors’ DEI programs, and their prime contracts may be impacted as a result. Second, item 4 requires contractors to report to the Government any known or “reasonably knowable” conduct of subcontractors that may violate the Clause, as well as any efforts by subcontractors to bring legal action related to the Clause. Contractors who enter into contracts with the Clause must consider how to handle this provision, as it is unclear how the knowledge (or the “reasonably knowable”) component of item 4 will be assessed – i.e., whose knowledge will be imputed to the contractor, or what will be considered “reasonably knowable.” 
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).”
   • Item 6 adopts the same approach introduced in Executive Order 14173, making a clear statement intended to assist the Government or any qui tam relator bringing FCA claims based on a “racially discriminatory DEI activity.” Accordingly, the potential consequences for violating the Clause include the FCA’s treble damages, and individuals are incentivized to bring FCA claims on behalf of the government based on the Clause as qui tam relators.  As discussed below, the Order contains a provision encouraging prompt consideration of qui tam actions by the Attorney General.  For additional information about FCA liability in this context, please review our post: DEI and Government Contractors: A High-Stakes Shift.

The Federal Acquisition Regulatory Council (“FAR Council”) is directed to amend the Federal Acquisition Regulation (“FAR”) to include the Clause in federal procurement, solicitations, and contracts, and to remove any conflicting provisions in the FAR.  The FAR Council is further directed to issue deviation and interim guidance within 60 days of the Order “regarding agency implementation of the” Clause prior to completion of the FAR amendments.

Enforcement

The Order, in its “Penalties” section, establishes a multi-layered enforcement framework for the Clause’s requirements. 

• The Director of the Office of Management and Budget (“OMB”) is directed to issue guidance to contracting agencies to ensure compliance with the Order, which shall address the cancellation, termination, or suspension of contracts, and the taking of “appropriate action to suspend or debar contractors or subcontractors” for failure to comply with the Clause.
• The OMB Director is directed to “identify economic sectors that pose a particular risk of ... engaging in racially discriminatory DEI activities based on current or past conduct, and issue additional guidance to contracting agencies regarding best practices to ensure compliance with [the Order] within such sectors.”
• Each agency head must review the agency’s implementation of the Clause within 120 days and report to the Assistant to the President for Domestic Policy regarding compliance. Agency heads must thereafter “regularly review and take appropriate measures to ensure such compliance.”
• The Attorney General, in consultation with relevant contracting agencies, must “consider whether to bring actions under the False Claims Act against contractors or subcontractors that violate the clause,” and to “ensure the prompt review of civil actions brought by private persons under 31 U.S.C. 3730(b)(1)” – the qui tam  provision of the False Claims Act – “including by rendering a decision on whether to proceed with an action under 31 U.S.C. 3730(b)(4), to the maximum extent practicable, within the 60-day period described in 31 U.S.C. 3730(b)(2).”

As noted above, the Clause is drafted to facilitate and expedite FCA claims.  This provision suggests that if a contractor is deemed to have violated the Clause the Attorney General must consider whether to initiate a claim under the FCA. Further, the Administration’s Fact Sheet characterizes this provision as directing “the Attorney General to prioritize potential claims under the False Claims Act against contractors or subcontractors that are in violation” of the Clause. 

What Should Federal Contractors Do Now?

As discussed above, while contractors have been subject to enhanced liability and risk regarding their DEI programs for over a year, the Order increases and expands these risks. While contractors will only be subject to these new requirements when they enter into contracts with the Clause, contractors must recognize that the Clause may not only be included in new contracts; it is possible that agencies could seek to modify existing contracts to add the Clause in the coming weeks and months.

Accordingly, contractors should be thinking about the Clause now and considering the following steps, in consultation with counsel to permit assertion of privilege to the greatest extent possible:

• Review and assess DEI-related programs and policies, particularly those focused on race and ethnicity. Federal contractors should promptly review (or re-review) their DEI-related policies, programs, training, mentoring, leadership development initiatives, and vendor relationships through the lens of the Order’s definition of “disparate treatment based on race or ethnicity.” The Clause implicates efforts that extend beyond what is commonly understood to be DEI. Contractors must consider the programs they participate in and how they allocate their resources in conducting this analysis.
• Prepare for the new contract Clause. Agencies are required to begin including the Clause in contracts within 30 days. Contractors should ensure that their employees involved in government contracting are aware of the Clause and identify contracts or contract modifications including the Clause prior to entering into such agreements.
• Be aware of FCA exposure. Contractors should be attuned to internal complaints about DEI efforts, as such complaints may constitute protected activity under the FCA’s anti-retaliation provisions, creating additional liability risk.
• Assess how to manage subcontractors and subcontractor reporting obligations. As discussed above, the Clause does not contain a flow down provision (though the new FAR implementing the Clause may add one) but imposes requirements and liability on contractors for the actions of their subcontractors. Contractors must consider what to include in their subcontracts to manage this new reality, and what internal processes are necessary to address contractor reporting requirements regarding subcontractor actions. The requirement to report a subcontractor’s “known or reasonably knowable” violations adds an ambiguous due diligence dimension that must be carefully considered.
• Monitor forthcoming guidance. The forthcoming OMB guidance, the identification of high-risk economic sectors, the FAR Council’s interim guidance (expected within 60 days), and the eventual FAR amendments will be critical in defining the contours of compliance.

We will continue to monitor this Executive Order and related developments.

]]> Quick Hit: On March 26, 2026, President Trump signed an Executive Order titled “Addressing DEI Discrimination by Federal Contractors” (the “Order”) which mandates the inclusion of a new clause (the “Clause”) in all covered federal contracts and contract-like instruments prohibiting federal contractors from engaging in “racially discriminatory DEI activities.” The Order directs agencies to enforce the Clause’s requirements through contract cancellation, termination, or suspension, as well as debarment, and calls on the Attorney General to prioritize False Claims Act (“FCA”) suits against noncompliant contractors.  

As the Administration’s Fact Sheet regarding the Order notes, the Order is the latest in a series of actions the Trump Administration has taken to curtail what it views as illegal diversity, equity and inclusion (“DEI”) initiatives.

Key Takeaways: At first blush, the Order appears to do little more than formalize previous efforts to address contractors’ DEI activities, primarily Executive Order 14173 (“EO 14173”).  EO 14173 provides that federal contractors and grantees are required to certify that they did “not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws,” and to “agree that … compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions for purposes of” the FCA. 

However, as detailed below, while the Order mirrors the concepts in EO 14173 and operationalizes and standardizes what seemed to be an inconsistent and uneven implementation effort regarding EO 14173, it also builds upon and increases the risks for federal government contractors who maintain race or ethnicity-related programs in several ways. 

1. While the Order is narrower than EO 14173 in that applies only to race and ethnicity DEI programs (as opposed to all federally protected characteristics), EO 14173 did not define the term “DEI,” leaving uncertainty as to what programs were covered. Further, EO 14173 only barred DEI programs that violated “Federal anti-discrimination laws” – a standard open to interpretation and largely limited to employment and, with respect to race, contracting activities. The Order, by defining prohibited “racially discriminatory DEI activities,” does not carry forth this ambiguity, and it also expands the scope of activities that had been understood to be covered by EO 14173.  The legality of the program is removed from the equation. All activities that treat individuals differently based on race or ethnicity are barred, and the prohibited activities extend beyond employment and contracting to include “program participation” and “allocation or deployment of an entity’s resources.”
2. The Order expands the scope of the DEI prohibition by implicating subcontractors, who were not addressed in EO 14173. While the Clause does not contain a “flow down” provision (though one may be added when the Clause is made part of the Federal Acquisition Regulation), it subjects contractors to obligations and consequences related to their subcontractors’ activities. Specifically, contractors may lose contracts or be debarred for their subcontractors’ “racially discriminatory DEI activities,” are required to report any subcontractor violations of the Clause, and must inform the Government if a subcontractor sues the contractor over actions related to the Clause. 
3. While EO 14173 focused on FCA liability, the Order expands the consequences for contractors.  The Order makes clear that violations of the Clause can result in cancellation, suspension or termination of contracts, and contractor debarment – consequences not addressed in EO 14173. In addition, the Order instructs the Attorney General to prioritize consideration of FCA claims related to violations of the Clause.

So, while contractors were already subject to heightened risks regarding DEI initiatives prior to the Order, those risks, once they have contracts containing the Clause, will expand. As discussed below, contractors should take steps now to address the Order and the likelihood they will be subject to contracts with the Clause in the coming months.

Deeper Dive:The Order has two main components: (1) a new federal contract provision addressing “racially discriminatory DEI activities”; and (2) guidance regarding enforcement of the Clause.

The “Racially Discriminatory DEI Activities” Clause

The Order requires federal agencies, within 30 days of its issuance, to the extent permitted by law, to “ensure that contracts and contract-like instruments, including contractors’ subcontracts and subcontractors’ lower-tier subcontracts, include” a clause addressing “racially discriminatory DEI activities.” “Racially discriminatory DEI activities” is defined 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.” 

• Limited to Race and Ethnicity. Notably, as the term suggests, the activities regulated are limited to those based on race and ethnicity, and not other protected characteristics. Accordingly, DEI activities based on sex, gender identity and expression, national origin, and other protected characteristics that have been the focus of other Administration initiatives are not covered. 
• Limited to Disparate Treatment. Further, consistent with the Administration’s articulated view, the targeted activities are those involving “disparate treatment,” and the Order does not address “disparate impact.” In other words, the Order addresses programs that intentionally discriminate on the basis of race and ethnicity, and not those that may have an unintended race or ethnicity-based impact. Even so, contractors should be aware that the Administration has warned against using facially-neutral “proxies” to mask efforts aimed at race- or ethnicity-based decision-making.
• Broad Scope of Covered Activities. The activities covered extend beyond employment-related actions, such as hiring and promotions, to contracting, “program participation” and “allocation of resources.” “Program participation” is defined 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.” 

The Clause to be included in federal contracts is as follows:

“In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

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 all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;”
   • This broad provision contemplates that agencies may seek information regarding compliance, which contractors will be contractually obligated to provide.  Whether that becomes a common practice remains to be seen.
3. “In the event of the contractor’s or a subcontractor’s noncompliance with this clause, this 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”
   • Items 3, 4 and 5 impose requirements and consequences on contractors for their subcontractors’ violations of the clause. First, item 3 makes clear that the contractor can be held responsible for its subcontractors’ DEI programs, and their prime contracts may be impacted as a result. Second, item 4 requires contractors to report to the Government any known or “reasonably knowable” conduct of subcontractors that may violate the Clause, as well as any efforts by subcontractors to bring legal action related to the Clause. Contractors who enter into contracts with the Clause must consider how to handle this provision, as it is unclear how the knowledge (or the “reasonably knowable”) component of item 4 will be assessed – i.e., whose knowledge will be imputed to the contractor, or what will be considered “reasonably knowable.” 
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).”
   • Item 6 adopts the same approach introduced in Executive Order 14173, making a clear statement intended to assist the Government or any qui tam relator bringing FCA claims based on a “racially discriminatory DEI activity.” Accordingly, the potential consequences for violating the Clause include the FCA’s treble damages, and individuals are incentivized to bring FCA claims on behalf of the government based on the Clause as qui tam relators.  As discussed below, the Order contains a provision encouraging prompt consideration of qui tam actions by the Attorney General.  For additional information about FCA liability in this context, please review our post: DEI and Government Contractors: A High-Stakes Shift.

The Federal Acquisition Regulatory Council (“FAR Council”) is directed to amend the Federal Acquisition Regulation (“FAR”) to include the Clause in federal procurement, solicitations, and contracts, and to remove any conflicting provisions in the FAR.  The FAR Council is further directed to issue deviation and interim guidance within 60 days of the Order “regarding agency implementation of the” Clause prior to completion of the FAR amendments.

Enforcement

The Order, in its “Penalties” section, establishes a multi-layered enforcement framework for the Clause’s requirements. 

• The Director of the Office of Management and Budget (“OMB”) is directed to issue guidance to contracting agencies to ensure compliance with the Order, which shall address the cancellation, termination, or suspension of contracts, and the taking of “appropriate action to suspend or debar contractors or subcontractors” for failure to comply with the Clause.
• The OMB Director is directed to “identify economic sectors that pose a particular risk of … engaging in racially discriminatory DEI activities based on current or past conduct, and issue additional guidance to contracting agencies regarding best practices to ensure compliance with [the Order] within such sectors.”
• Each agency head must review the agency’s implementation of the Clause within 120 days and report to the Assistant to the President for Domestic Policy regarding compliance. Agency heads must thereafter “regularly review and take appropriate measures to ensure such compliance.”
• The Attorney General, in consultation with relevant contracting agencies, must “consider whether to bring actions under the False Claims Act against contractors or subcontractors that violate the clause,” and to “ensure the prompt review of civil actions brought by private persons under 31 U.S.C. 3730(b)(1)” – the qui tam  provision of the False Claims Act – “including by rendering a decision on whether to proceed with an action under 31 U.S.C. 3730(b)(4), to the maximum extent practicable, within the 60-day period described in 31 U.S.C. 3730(b)(2).”

As noted above, the Clause is drafted to facilitate and expedite FCA claims.  This provision suggests that if a contractor is deemed to have violated the Clause the Attorney General must consider whether to initiate a claim under the FCA. Further, the Administration’s Fact Sheet characterizes this provision as directing “the Attorney General to prioritize potential claims under the False Claims Act against contractors or subcontractors that are in violation” of the Clause. 

What Should Federal Contractors Do Now?

As discussed above, while contractors have been subject to enhanced liability and risk regarding their DEI programs for over a year, the Order increases and expands these risks. While contractors will only be subject to these new requirements when they enter into contracts with the Clause, contractors must recognize that the Clause may not only be included in new contracts; it is possible that agencies could seek to modify existing contracts to add the Clause in the coming weeks and months.

Accordingly, contractors should be thinking about the Clause now and considering the following steps, in consultation with counsel to permit assertion of privilege to the greatest extent possible:

• Review and assess DEI-related programs and policies, particularly those focused on race and ethnicity. Federal contractors should promptly review (or re-review) their DEI-related policies, programs, training, mentoring, leadership development initiatives, and vendor relationships through the lens of the Order’s definition of “disparate treatment based on race or ethnicity.” The Clause implicates efforts that extend beyond what is commonly understood to be DEI. Contractors must consider the programs they participate in and how they allocate their resources in conducting this analysis.
• Prepare for the new contract Clause. Agencies are required to begin including the Clause in contracts within 30 days. Contractors should ensure that their employees involved in government contracting are aware of the Clause and identify contracts or contract modifications including the Clause prior to entering into such agreements.
• Be aware of FCA exposure. Contractors should be attuned to internal complaints about DEI efforts, as such complaints may constitute protected activity under the FCA’s anti-retaliation provisions, creating additional liability risk.
• Assess how to manage subcontractors and subcontractor reporting obligations. As discussed above, the Clause does not contain a flow down provision (though the new FAR implementing the Clause may add one) but imposes requirements and liability on contractors for the actions of their subcontractors. Contractors must consider what to include in their subcontracts to manage this new reality, and what internal processes are necessary to address contractor reporting requirements regarding subcontractor actions. The requirement to report a subcontractor’s “known or reasonably knowable” violations adds an ambiguous due diligence dimension that must be carefully considered.
• Monitor forthcoming guidance. The forthcoming OMB guidance, the identification of high-risk economic sectors, the FAR Council’s interim guidance (expected within 60 days), and the eventual FAR amendments will be critical in defining the contours of compliance.

We will continue to monitor this Executive Order and related developments.

According to reports, OFCCP Director Ashley Romanias recently informed staff of a reorganization plan that will restructure the agency’s workforce to “reflect[] a streamlined structure” and “capitalize[] on the knowledge, skills, and abilities of existing staff.”

Key elements of the reorganization include:

1. The establishment of a new Branch of Field Operations within the Division of Program Operations, to which field staff will be reassigned.
2. The consolidation of the Division of Policy and Program Development by merging regulatory, legislative, policy, outreach, and help desk functions.

The plan does not call for changes to the grades, pay, and or locations of affected employees. 

A Department of Labor spokesperson characterized the reorganization as “an essential part of right-sizing OFCCP in order to fulfill its core statutory responsibilities while ending prior practices that promoted discriminatory DEI.”

We will continue to monitor these developments and provide updates as the OFCCP’s new structure takes shape.