President Donald Trump signed a sweeping executive order Thursday that effectively bans federal contractors from engaging in diversity, equity, and inclusion (DEI) activities.
The order, titled “Addressing DEI Discrimination by Federal Contractors,” mandates that any company doing business with the U.S. government must eliminate programs that treat individuals differently based on race or ethnicity, shifting instead to a strictly merit-based system.
Under the new rules, “racially discriminatory DEI activities” are defined as any disparate treatment in hiring, promotions, vendor agreements, or “program participation,” which includes internal mentoring, training, and leadership development.
The President stated in the order that these practices are “not only unethical and often illegal, but also cause inefficiencies, waste, and abuse.” He further noted that such activities “impose artificial costs” by bypassing merit-based principles and “creating excessive workforce turnover.”
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The order requires executive departments and agencies to include a specific non-discrimination clause in all new contracts within 30 days. This clause is not just for the primary contractors; it must also be passed down to all subcontractors. Companies that fail to comply face severe penalties, including the cancellation or termination of their existing contracts and potential debarment from future government work.
A significant portion of the order focuses on enforcement through the False Claims Act. The Attorney General has been directed to consider legal action against contractors who claim compliance while still practicing DEI-based selection.
The order states that compliance with these new rules is “material to the Government’s payment decisions,” meaning a violation could be treated as a form of financial fraud against the taxpayer.
“It is therefore the policy of the United States to promote economy and efficiency in Federal contracting by preventing racial discrimination,” the document reads, arguing that DEI programs limit the labor pool and increase costs that are eventually passed on to the federal government.
To ensure the transition happens quickly, the Director of the Office of Management and Budget (OMB) and the Federal Acquisition Regulatory Council have been tasked with updating federal regulations within 60 days. These agencies will also identify specific economic sectors deemed at “particular risk” for continuing DEI practices to provide more targeted oversight.
The White House has directed all agency heads to report on their progress in implementing these changes within 120 days. This move marks a definitive shift in federal procurement policy, prioritizing “immutable characteristics” being removed from the decision-making process in favor of objective job performance.
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