Executive Order 14398 Pertaining to DEI Discrimination by Federal Contractors

On March 26, 2026, President Trump issued a new Executive Order 14398: “Addressing DEI Discrimination by Federal Contractors.” The EO addresses DEI activities that discriminate via disparate treatment by race or ethnicity. The EO does not cover disparate treatment for other categories such as sex, national identity, religion, age, and disability status.

• Executive Order: Addressing DEI Discrimination By Federal Contractors

• Fact Sheet: President Donald J. Trump Addresses DEI Discrimination by Federal Contractors

The EO includes two definitions:

(a) For the purposes of this order, “racially discriminatory DEI activities” means 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.

(b) “Program participation” means 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.

From Executive Order (“Addressing DEI Discrimination by Federal Contractors”), March 26, 2026, Section 2.

The EO also calls for contracting agencies to include a new six paragraph clause in contracts within 30 days. Here is the clause:

“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;

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

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).”

From Executive Order (“Addressing DEI Discrimination by Federal Contractors”), March 26, 2026, Section 3.

The clause’s paragraphs fall into four categories: (1) having the contractor agree that it will not engage in any racially discriminatory DEI, (2) calling for contracting agencies to investigate contractor compliance via audits of records and information requests (those contractors found in noncompliance risk contract cancellation, termination, or suspension, and ineligibility for future Government contracts), (3) placing responsibility for subcontractor compliance with the prime contractor, and (4) using the False Claims Act to enforce compliance with the Executive Order.

The EO calls for the Office of Management and Budget to prepare guidance for contracting agencies in how to ensure compliance with the EO. It also calls for identification of economic sectors (i.e., industries) that “pose a particular risk” of engaging in racially discriminatory DEI activities and the establishment of best practice for ensuring compliance in those sectors.

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