DEI After EO 14173: Where Federal Contractors Stand Now
Since the issuance of Executive Order 14173 in January 2025, federal contractors have been navigating a changed compliance environment for diversity, equity, and inclusion initiatives. The Order revoked Executive Order 11246, directed agencies to stop enforcing the prior affirmative action framework for federal contractors, and required agencies to include terms in contracts and grants making compliance with federal antidiscrimination law material to payment decisions, while also requiring a certification that contractors do not operate DEI programs that violate applicable federal antidiscrimination law. The result has not been a blanket legal prohibition on all DEI activity, but rather a shift toward sharper scrutiny of whether particular programs or practices cross the line into unlawful decision-making based on protected characteristics. (The White House)
That distinction is critical. Existing federal civil rights laws still govern employment and federally funded activity, and the current administration’s approach has been to frame the issue around “illegal discrimination,” not around the mere use of DEI terminology. In July 2025, the Department of Justice issued government-wide guidance stating that entities receiving federal funds must ensure that their programs comply with federal antidiscrimination law regardless of how those programs are labeled. The guidance also signaled concern about facially neutral criteria that may function as proxies for protected traits, suggesting that enforcement risk may arise not only from explicit quotas or preferences, but also from program structures that appear designed to achieve similar results indirectly. (Department of Justice)
Enforcement risk increased further when the Department of Justice announced its Civil Rights Fraud Initiative in May 2025. That initiative expressly links federal civil rights compliance to False Claims Act exposure, stating that recipients of federal funds that knowingly violate federal civil rights laws may face FCA investigation and, where appropriate, suit. For contractors, that means DEI-related risk is no longer only a matter of employment litigation or agency oversight. It now potentially includes payment-related fraud theories if a contractor signs a certification while maintaining programs that the government later characterizes as unlawfully discriminatory. (Department of Justice)
At the same time, contractors should avoid overcorrecting. Government guidance and procurement implementation do not require abandonment of lawful efforts to expand recruiting pipelines, improve workplace access, strengthen anti-bias training, or encourage equal opportunity. What has changed is the importance of discipline in design and documentation. Contractors should review hiring, promotion, internship, mentorship, supplier, and training programs to confirm that they do not confer benefits or impose burdens based on protected characteristics in ways that federal law forbids. They should also confirm that internal language accurately describes business goals such as outreach, opportunity, access, and compliance rather than implying preferences or balancing outcomes by race or sex. (Department of Justice)
The procurement mechanics also matter. GSA and the Civilian Agency Acquisition Council moved in 2025 to remove the old FAR Subpart 22.8 clauses tied to Executive Order 11246, while also warning agencies that system updates could lag policy changes and that agencies would need to implement deviations through their own procurement channels. As of early 2026, GSA has also proposed SAM-related certification updates in the financial assistance context to align with Executive Order 14173 and DOJ guidance, which suggests the broader compliance architecture is still evolving rather than settled. Meanwhile, the Fourth Circuit vacated the preliminary injunction that had blocked parts of the Order, allowing the certification and related provisions to move forward while the litigation continues. (U.S. General Services Administration)
For federal contractors, the prudent course now is measured review, not panic. Programs should be assessed by counsel against actual antidiscrimination standards, certifications should be read carefully before execution, and documentation should show that employment and participation decisions remain merit-based and legally compliant. Contractors that approach this area with rigor rather than ideology will be best positioned to manage both compliance risk and operational continuity. (The White House)
Disclaimer:
This post is provided for informational purposes only and does not constitute legal advice. Federal contractors should consult qualified counsel regarding Executive Order 14173, agency-specific certifications, employment practices, and potential False Claims Act or civil rights exposure based on their particular facts and contract portfolio.