Donald Trump signed Executive Order 14398 on March 26, 2026. The order says the federal government should promote “economy and efficiency” in contracting by stopping what it defines as racially discriminatory DEI activities by federal contractors and subcontractors. In practice, it does that by requiring agencies to add a new contract clause, giving agencies and the Justice Department enforcement tools, and directing the federal contracting system to formally incorporate the new rule.
What the order actually does
The order defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or the allocation of resources. It specifically says “program participation” includes things like training, mentoring, leadership development, educational opportunities, clubs, and associations sponsored by the contractor or subcontractor. Within 30 days, agencies are told to ensure covered contracts, subcontracts, and lower-tier subcontracts include a clause requiring contractors not to engage in those activities, to provide records and reports if asked, to report certain subcontractor conduct, and to notify the government if a subcontractor lawsuit challenges the clause. It also states that compliance with the clause is material to government payment decisions for False Claims Act purposes.
Enforcement and rollout
If a contractor or subcontractor does not comply, the order says agencies should cancel, terminate, or suspend contracts as appropriate and take steps toward suspension or debarment. It also directs OMB to issue guidance, and tells OMB, the Attorney General, the Domestic Policy office, and the EEOC chair to identify sectors seen as especially high-risk for these practices and issue additional compliance guidance. The Attorney General is directed to consider False Claims Act cases and to promptly review certain private whistleblower suits involving federal contracts. The FAR Council is told to amend the Federal Acquisition Regulation, issue interim guidance within 60 days, and remove conflicting provisions. The order also includes a severability clause and says it does not create a private legal right enforceable against the government.
Who this affects
The biggest direct effect is on businesses that hold federal contracts and on subcontractors working under those contracts, because compliance becomes a condition of doing business with the federal government. Federal agencies that award and manage contracts are also directly affected because they must insert, monitor, and enforce the clause. Workers, job applicants, vendors, and participants in company-run training or leadership programs at those firms could feel the effects if employers change hiring, promotion, vendor, mentoring, or program-access policies in response. Industries later identified by OMB and other officials as higher-risk could face even closer scrutiny.
Why this is controversial
The White House says the order is meant to ensure merit-based and efficient federal contracting, arguing that race-based DEI practices raise costs, reduce efficiency, and pass those costs on to taxpayers. On the other side, critics argue the order is broad enough to chill lawful diversity or inclusion efforts because companies may pull back from programs they fear could be investigated; GovExec quoted employment lawyer Julia Judish warning the wording could create uncertainty even around recruiting practices such as attending an HBCU career fair, and Demetria McCain of the Legal Defense Fund said civil-rights laws have not changed and that lawful DEIA programs can expand opportunity rather than undermine merit.
TL;DR
Executive Order 14398 requires federal agencies to add a new clause to federal contracts barring what the order defines as racially discriminatory DEI activities by contractors and subcontractors, requires record-sharing and reporting for compliance checks, and allows penalties including contract cancellation, suspension, debarment, and possible False Claims Act scrutiny. It is mainly a federal contracting enforcement order, not a blanket nationwide ban on all DEI activity in every private workplace.
