The White House recently issued Executive Order 14398 (“EO 14398”), changing the way federal contracts are written and prohibiting federal contractors from engaging in “racially discriminatory DEI activities.” This policy change has significant impacts to the employment practices of businesses contracting with the federal government. EO 14398 makes changes not only to future federal contracts but also to existing federal contracts.
What are “Racially Discriminatory DEI Activities?”
EO 14398 defines “racially discriminatory DEI activities” as any disparate treatment based on race or ethnicity in the recruitment, employment, contracting, program participation, or allocation or deployment of an entity’s resources.
What will EO 14398 Require?
In addition to certifying that the contracting business itself does not engage in racially discriminatory DEI activities, EO 14398 creates several new obligations. All new federal contracts will include a clause requiring that the business provide the federal contracting agency with access to all the “books, records, and accounts” of the business to ensure compliance with the order. The federal government has indicated that the clause will be strictly enforced and penalties for noncompliance include termination/suspension of the contract and ineligibility for future federal contracts. Further, the EO requires that federal contractors report any of their subcontractors’ activities which may fall under the category of “racially discriminatory DEI activities” to the contracting agency.
Finally, the EO also instructs the U.S. Department of Justice to pursue False Claims Act (“FCA”) cases against non‑compliant businesses. FCA actions have significant implications for a business’ operations and finances, with violators being fined anywhere between $14,000 and $28,000 for each instance of non-compliance.
How Does This Impact Employment Practices?
Enactment of EO 14398 means that businesses subject to a federal contract will have to certify that they do not operate any DEI programs barred by the order. In practice, this prohibition bars employers from using race or ethnicity in any aspect of employment and prohibits the use of business resources for any civic, educational, training, and/or supplier relationships which are premised on DEI-related initiatives.
How Can Gravel & Shea Help?
EO 14398 applies the prohibition of racially discriminatory DEI activities to all future federal contracts as of April 26, 2026 but also permits contracting agencies to engage in bilateral updates to existing federal contracts to include this new anti-DEI clause by July 24, 2026. This process is complex and the consequences of ignoring these updates are wide-ranging. Our team at Gravel & Shea is ready to guide you through these changes and protect your business objectives while ensuring compliance with federal law.
Please contact Heather Rider Hammond (hhammond@gravelshea.com) or Chris M. Bohórquez (cbohorquez@gravelshea.com) at Gravel & Shea PC if you have questions or would like assistance.
