CLIENT ALERT: New Federal DEI Executive Order 14398

As of April 14, 2026

Overview

The Executive Order titled “Addressing DEI Discrimination by Federal Contractors” establishes new compliance obligations affecting federal contractors and subcontractors.  Beginning April 25, 2026, all new federal contracts and contract modifications must include a clause prohibiting certain DEI-related activities.

Key Provisions of the Executive Order

• All new federal contracts and modifications must include a clause prohibiting “racially discriminatory DEI activities,” including:

• Race-based recruitment

• Race-based mentorship programs

• Allocation of corporate resources based on race

• Supplier diversity programs

• Non-compliance is now explicitly deemed “material” under the False Claims Act (FCA) which we discussed in previous Client Alerts. To recap:

• The FCA exposes contractors to triple damages, contract termination, and debarment.

• If you sign a contract with this new clause and are found to have prohibited DEI programs, you are in breach of contract and subject to these triple damages.

• The Executive Order (EO) requires that all federal agencies include this clause in contracts and that there will be a mandatory flow-down provision for lower-tier subcontractors.

• The FAR Council will issue more formal deviation and interim guidance on this clause within 60 days from the March 26th date of this EO.

Required Contractor and Subcontractor Conditions

This clause will require the prime and its subcontractors to accept the following conditions:

• Not to engage in racially discriminatory DEI activities.

• Produce “all information and reports, including providing access to books, records, and accounts” as required by the contracting agency, to assess compliance.

• Expressly authorize termination of the contract, or subcontract, for noncompliance.

• Acknowledge that a noncompliant contractor/subcontractor “may be declared ineligible for further Government contracts.”

• The prime contractor must report any violations by its subcontractors.

• The prime contractor must notify the agency if a subcontractor sues the prime contractor, in a way that puts the validity of the clause at issue.

• Compliance with the clause is material under the FCA.

Enforcement Measures

• The EO mandates that agencies terminate contracts and debar contractors, if they do not comply with all requirements of the new clause.

• It also directs the Office of Management and Budget to work with the EEOC to identify specific industries that “pose a particular risk of entities engaging in racially discriminatory DEI activities based on current or past conduct.”

Scope and Open Questions

• This EO only references race or ethnicity, not gender. It begs the question whether a future EO will cover gender?

• Obviously this new EO is very broad and raises many questions.  It is likely that provisions of it will be challenged in the courts.

Here Are Some Actions Contractors Can Take Now

• Work with Arbor, as we have specialized expertise working with government agencies and partnering with your legal counsel to conduct a privileged DEI audit and risk assessment. Review every recruiting and internal employee program.

• Look at Employee Resource Groups, hiring initiatives, diversity programs, including scholarships, charitable contributions and more.  If access is restricted by race or ethnicity, or influenced by either, the program may need to be changed or eliminated.

• Make sure any special company programs are based on skills, interests, level in the organization, or anything other than identity.

• Update your subcontract forms and templates so the flow-down mandatory clause is in covered subcontracts.

• Plan for subcontractor oversight and/or coordination to ensure their compliance with the EO.

• Maintain proper documentation and records of compliance with the EO.

• Review your website to assure it is in line with these new requirements.

• Also, be sure that your management employees are trained and made aware of this new clause and its requirements.

Important Note:

None of the requirements of the Protected Veterans and Individuals with Disabilities statutes and regulations violate any provisions of this new EO.  AAPs are still required, as are the mandatory reports and the implementing actions/tasks about which Arbor has provided examples and guidance.

The Arbor Consulting Group, Inc.

https://www.arborhr.com/