This week, the Trump administration issued three successive executive orders (E.O.s) aimed at eliminating diversity, equity, and inclusion (DEI) initiatives in the federal government and in federal contracting:

1. Initial Rescissions of Harmful Executive Orders and Actions
2. Ending Radical and Wasteful Government DEI Programs and Preferencing
3. Ending Illegal Discrimination and Restoring Merit-Based Opportunity 

The orders are set to have profound implications for government contractors, especially those that have implemented DEI programs in accordance with the policies of the last administration. Below we summarize the relevant provisions of each of the three E.O.s, including how and when the E.O. directives will be implemented, and provide recommendations for contractors as they prepare to comply with the newly established "merit-based" framework. 

"Initial Rescissions of Harmful Executive Orders and Actions" E.O.

This first E.O. revokes dozens of orders issued under the Biden administration, including E.O. 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, which, among other requirements, directed agencies to remove barriers to federal contracting opportunities impacting underserved communities. 

Impact on Contractors

This E.O. does not specifically direct or require contractors to take any action at this point. Nonetheless, with the revocation of E.O. 13985, it is no longer the policy of the federal government that "contracting and procurement opportunities should be available on an equal basis to all eligible providers of goods and services," and contractors from underserved communities should be aware that they may no longer receive any preferential treatment (i.e., the removal of potential barriers to contracting opportunities) that may have existed under the prior administration's procurement policies. Though not stated expressly, the rescission of E.O. 13985 raises questions about the potential impact on small minority business preferences (and similar preferences) administered by the Small Business Administration (SBA) and other agencies throughout the federal government.

"Ending Radical and Wasteful Government DEI Programs and Preferencing" E.O.

This second E.O. further rolls back specific actions taken pursuant to E.O. 13985:

• Instructs the Director of the Office of Management and Budget (OMB), in conjunction with the Attorney General (AG) and Director of Office of Personnel Management (OPM), to terminate all "illegal DEI and 'diversity, equity, inclusion, and accessibility' (DEIA) mandates, policies, programs, preferences, and activities" within the federal government
• Directs each federal agency to terminate all DEI and DEIA offices, positions, and "equity-related" grants or contracts

Notably, almost immediately after the E.O. was issued, OPM issued a memorandum directing agencies to provide OPM with a list of all DEIA-related agency contracts by November 5, 2025. 

Impact on Contractors

While the E.O. and memo do not define the terms "equity-related" and "DEIA-related" contracts, it is likely that these terms will be interpreted broadly given the administration's posture towards DEI generally. As such, federal contractors with contracts involving equity-related scopes of work should prepare for the possibility of contract termination at some point in 2025 or early 2026. If these contracts are terminated, they are likely to be terminations for the government's convenience, not terminations for default. As such, contractors should expect to be able to recover reasonable, allocable, and allowable termination costs resulting from a termination for convenience. In particular, commercial services contracts, which are governed by Federal Acquisition Regulation (FAR) 52.212-4(l), allow contractors to recover "a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination, plus reasonable charges the Contractor can demonstrate to the satisfaction of the Government using its standard record keeping system, have resulted from the termination." Given that, potentially impacted contractors should work with legal counsel to immediately gather and assess all documentary evidence of costs incurred in connection with contracts that may be terminated in the near future. Undertaking those efforts now could be the difference between recovering those costs or being left empty-handed. 

"Ending Illegal Discrimination and Restoring Merit-Based Opportunity" E.O.

The third E.O. addressing DEI programs directs all executive agencies to "terminate all discriminatory and illegal" requirements and guidance and to "combat illegal private-sector DEI preferences, mandates, policies, programs, and activities."

This E.O. purports to make several significant changes to existing laws: 

• Rescinds E.O. 11246 (Equal Employment Opportunity (EEO)), in effect since September 24, 1965, that prohibited federal contractors from discriminating based on race, color, religion, sex, sexual orientation, gender identity or national origin, and imposed affirmative action obligations on contractors; directs contractors to cease compliance with the EEO regulatory scheme within 90 days (April 20, 2025)
• Directs the Office of Federal Contract Compliance Programs (OFCCP) to immediately cease holding federal contractors responsible for taking "affirmative action" 
• Directs the heads of all executive agencies to include in every contract or grant award: 
  • A term requiring the contractor to certify "that its compliance in all respects with all applicable Federal anti-discrimination laws is material to the government's payment decisions" 
  • A term requiring the contractor "to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws" 
• Directs OMB to review and revise all government-wide processes and guidance as necessary and terminate all DEI principles in federal acquisitions

Notably, the order's directives are not limited entirely to federal contractors, but extend more generally to the private sector by calling on the AG, in conjunction with OMB and the agency heads, to submit a report within 120 days that contains "recommendations for enforcing Federal civil-rights laws and encouraging the private sector to end illegal discrimination and preferences, including DEI." In particular, the report is to include the "most egregious and discriminatory DEI practitioners in each sector of concern," and specific measures to deter DEI principles, including identification, by each agency, of "up to nine potential civil compliance investigations" of corporations, non-profits, state and local bar and medical associations, and higher education institutions. 

Impact on Contractors

First, contractors should start reviewing their internal policies and processes related to EEO (think FAR 52.222-26 Equal Opportunity) and affirmative action (FAR 52.222-25 Affirmative Action Compliance), if any, and analyze what impact this E.O. might have. That work should also include review of existing contracts, subcontracts, grants, etc., to identify regulatory or special provisions that would potentially be illegal once the E.O. takes full effect. The E.O. expressly excludes "private-sector employment and contracting preferences for veterans of the U.S. armed forces or persons protected by the Randolph-Sheppard Act," so for now, any policies related to these individuals are not impacted. 

Second, contractors should review and consider the potential need to revise their corporate DEI programs and policies. This work is critical, as the E.O. expressly provides that a company's non-DEI certification is material to the government's payment decisions under contracts and grants, meaning that these certifications can provide a basis for False Claims Act (FCA) liability in addition to other potential adverse actions. Beyond establishing potential FCA liability, the order raises several questions, including:

• When and how agency heads will start to include the certification clause in new contract and grant awards
• Whether existing contracts will be modified to include the certification requirement 
• Which type of DEI programs "violate [] applicable Federal anti-discrimination laws" – given the order's broad language, presumably most DEI programs will be considered in violation of federal anti-discrimination laws, but the true scope of the certification requirement remains to be seen
• Whether these requirements will be required to be flowed down to subcontracts

Apart from the substance of these new policies, the E.O.'s non-DEI certification requirement raises some potentially weighty administrative procedure issues. 

The rulemaking procedures of the Administrative Procedure Act (APA) apply to "agency process," and presidential actions like executive orders are typically not subject to the APA's requirements because the president is not expressly an "agency" under the APA. Still, a president generally only has the authority to issue an E.O. if and to the extent authorized by statute/Congress or the Constitution. An agency's implementation of an E.O. is not necessarily immune from judicial review under the APA.

Here, the E.O. invokes civil rights-era legislation to declare that DEI initiatives "can violate the civil-rights laws" of the U.S. But, apart from referencing the Civil Rights Act of 1964, the E.O. does not specify which civil rights laws, let alone which parts of those laws, could be violated by private DEI programs. The E.O. also does not account for potential limits on presidential authority that Congress may have imposed in those same laws (e.g., "as necessary to effectuate," subject to "notice and comment") or via the Federal Property and Administrative Services Act (FPASA) (e.g., vaccine mandate). 

At the same time, the directive for agency heads to adopt and include anti-DEI "terms" in contracts and grants seems to skip a few important steps. Ordinarily, such a change would route through OMB and the FAR Council and be subject to a rulemaking process with notice and comment. The change proposed here cries out for public rulemaking because, among other potential issues, a "no DEI program" certification requirement — applicable to "every contract or grant award" and that has FCA implications for every invoice thereunder — could drastically undercut the federal government's access to critical goods and services provided by commercial product and services contractors, as well as contractors that are subject to state or foreign laws that require them to implement certain DEI policies.

Contractors and grant recipients who have implemented DEI and other anti-discrimination policies and procedures should prepare for potential enforcement stemming from the administration's changes. For example, the new administration could question previous contract payments, including reimbursement of indirect costs associated with DEI programs. As such, contractors should be gathering relevant data and documents and conducting an internal review (at the direction of or with assistance of counsel) to assess compliance with then-applicable requirements. This is especially true for commercial services and foreign contractors who may be subject to other legal regimes (e.g., California or European law) that mandate DEI policies and programs.

Conclusion

The new administration's flurry of E.O.s targeting DEI initiatives in the federal government and federal contracting are only the beginning of the new "merit-based" framework that will have profound impacts on federal contractors. Contractors should not delay in reviewing their current contracts, EEO and affirmative action policies, and their DEI programs to ensure compliance going forward. While these E.O.s might be challenged in court, as the COVID-19 vaccine mandate E.O.s were, delaying implementation, contractors should still begin conducting internal reviews of their policies and procedures to assess how these E.O.s, if fully implemented, will impact their businesses.

If you have any questions regarding the E.O.s or your companies' compliance therewith, please contact one of the Miller & Chevalier attorneys listed below. 

Alex L. Sarria, asarria@milchev.com, 202-626-5822 

Nate Lankford, nlankford@milchev.com, 202-626-5978

Jason N. Workmaster, jworkmaster@milchev.com, 202-626-5893

Scott N. Flesch, sflesch@milchev.com, 202-626-1584

Ashley Powers, apowers@milchev.com, 202-626-5564

Connor W. Farrell, cfarrell@milchev.com, 202-626-5925

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