New Executive Order Gives Federal Agencies 30 Days to Include New Clause in Contracts

A new Executive Order directs federal agencies to prohibit “racially discriminatory DEI activities” in all contracts to acquire goods or services that are covered by the Federal Acquisition Regulation (“FAR”). The complete text of the Executive Order, titled Addressing DEI Discrimination by Federal Contractors, may be found here. On its terms, the Executive Order focuses on FAR contracts exclusively and does not extend to grants or cooperative agreements.  

Signed on March 26, 2026, section 3 of the Executive Order requires agencies to add a new clause in all their FAR contracts setting forth that agency contractors (and their subcontractors at every tier) agree that they will not engage in any kind of “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.” 

Contractors should expect their FAR contracts to include the new clause no later than April 25, 2026. Moreover, the Executive Order directs the FAR Council to issue interim guidance and to amend the Federal Acquisition Regulation, title 48 of the Code of Federal Regulations, to provide for inclusion of the new required clause in all federal procurements, solicitations, and contracts.

Of note, this new required clause places the burden on contractors to meticulously oversee compliance by their subcontractors—contractors must now report on any subcontractor’s “known or reasonably knowable conduct that may violate this clause” and take appropriate remedial action. In addition, contractors must inform the federal agency “if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause”−signaling the Administration may attempt to intervene in any lawsuits that question the legality of the new requirement.  

By way of enforcement, the Executive Order expressly provides that compliance with the terms of the new contractual clause is “material to the Government’s payment decisions”—a key element to establish False Claims Act liability. Federal contractors are thus put on notice that the Administration has expanded its attention from “DEI policies” in grants and cooperative agreements, generally not covered by the FAR, to procurements by federal agencies themselves.

Feldesman will continue to follow new guidance and policies that impact recipients of federal assistance. Please contact Feldesman attorneys Phillip A. Escoriaza and Mindy B. Pava with any questions regarding the Administration’s evolving DEI policies.