White House issues Executive Order introducing new restrictions on DEI-related provisions in federal contracts

Key Takeaways

• On March 26, President Trump signed Executive Order 14398 under the Federal Property and Administrative Services Act (FPASA), directing federal agencies to include provisions restricting, auditing and enforcing DEI-related policies in federal contracts.
• The EO establishes new compliance and reporting requirements for contractors, shifts enforcement responsibilities across multiple federal agencies and modifies the scope of prior nondiscrimination provisions.
• Counties that hold federal contract may be subject to the order’s requirements, including oversight of subcontractors. The EO outlines standards and review processes related to DEI activities in federal contracting.

Key provisions within the Executive Order

On March 26, President Trump signed an Executive Order (EO) 14398 under the Federal Property and Administrative Services Act (FPASA). The order directs all federal executive departments and agencies to ensure that contracts and contract-like instruments, including contractors’ subcontracts at all tiers – include provisions related to restricting, auditing and enforcing diversity, equity and inclusion (DEI) policies and activities. 

Key Provisions include: 

1. Changes to contractor requirements: Contracting with the federal government must comply with federal guidance on certain DEI-related practices, which may affect which vendors counites can work with on federally funded projects.  
   • Program participation: The order defines certain forms of program participation as unlawful DEI activity, including access to training, mentoring, leadership development and educational programs sponsored by contractors or subcontractors.
   • Compliance: Contractors must report subcontractor conduct that may violate the order. The Office of Management and Budget (OMB), in coordination with federal leadership, will identify sectors considered at elevated risk and issue guidance to agencies. Agenda heads must review implementation and report on compliance within 120 days.
   • Implementation: The Federal Acquisition Regulatory Council will update procurement rules, remove conflicting provisions and issue interim guidance within 60 days.
2. New compliance and reporting requirements: Contractors must provide detailed records and reports to demonstrate compliance. Counties working with federal funds may see increased administrative coordination with vendors to ensure documentation and audit readiness.
3. Risk of contract disruption: Noncompliance may result in contract termination, suspension or debarment. This creates potential risk for county projects that depend on federal contractors, including delays or the need to identify replacement vendors.
4. Flow-Down to subcontractors: Requirements extend to subcontractors. If a county is part of a federally funded project, these rules may apply indirectly to local partners and service providers.

Impact on counties

Many counties hold direct contracts with the federal government, making them subject to this order as federal contractors.  Affected counties will need to asses their own compliance and may be responsible for monitoring their subcontractors’ adherence to the order’s provisions. NACo will continue to monitor the developments related to this EO and provide updates on a continuous basis.