Reed Smith Client Alerts

Key takeaways

  • President Trump issued an Executive Order on January 21, 2025, rescinding previous DEI-related orders, impacting federal contractors and grantees
  • While there were attempts to freeze all federal funding, grants, or disbursements potentially impacted by the Order, the directive was rescinded
  • Federal contractors must comply with new policies within 90 days, facing potential False Claims Act liability for non-compliance

New Administration Takes Aim at DEI

On January 21, 2025, President Trump signed Executive Order (EO) 14173, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” which, as expected, reshapes federal employment and contracting priorities. Aimed at protecting Americans from discrimination based on race, color, religion, sex, or national origin, the EO directs all federal agencies to terminate “all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” and to “enforce our longstanding civil-rights laws and to combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The EO will have several significant effects on federal contractors and grant recipients.

In addition to revoking EO 11246, which was signed by President Lyndon B. Johnson and has been in effect for nearly sixty years, the EO directs the Office of Federal Contract Compliance Programs to “immediately cease promoting diversity, enforcing affirmative action requirements, and allowing or encouraging federal contractors or subcontractors from considering race, color, sex, sexual preference, religion, or national origin in employment, procurement, or contracting practices.” Along these same lines, federal contractors and grant recipients must now certify that they do not operate “any programs promoting DEI” that violate federal anti-discrimination laws. Under the EO, this required certification of compliance with all applicable federal anti-discrimination laws will be considered “material to the government’s payment decisions” under the False Claims Act (FCA). This creates significant exposure for contractors and grantees, including through whistleblower complaints.