On January 21, 2025, President Donald Trump issued Executive Order (EO) 14173 (Ending Illegal Discrimination and Restoring Merit-Based Opportunity). Purporting to revoke several executive actions promoting diversity, equity, and inclusion (DEI) in federal programs, EO 14173 sets the stage for ending affirmative action in the federal government (at least when it arguably violates applicable federal antidiscrimination laws). Section 3(b) of EO 14173 directly impacts federal contracts and grants because it revokes EO 11246 (Equal Employment Opportunity) and its progeny, halting audits by the Office of Federal Contract Compliance Programs (OFCCP) into alleged violations of EO 11246’s prohibitions. It also seeks to eliminate federal agency DEI programs or initiatives that violate any applicable federal antidiscrimination laws. Section 3(c) empowers the Office of Management and Budget to implement these policies.
Unique among the raft of EOs aiming to realign Executive Branch spending and priorities, EO 14173 directed federal agencies to modify contracts and grants by requiring a written certification by the contractor or grant recipient that it does not maintain DEI and affirmative action programs that violate applicable federal antidiscrimination laws, adding further that the certification is material to the government’s decision to pay the contractor or disburse funds to a grant recipient, thereby specifically raising the risk of prosecution under the federal False Claims Act (FCA). Although EO 14173 does not address whether this certification requirement flows down to subcontractors and subgrantees, we expect agencies to attempt to require it. In the ensuing flurry of activity, many federal agencies began to issue agency-specific directives, letters, and notices, intending to initiate the implementation of this new certification requirement.
These past few weeks have offered a glimpse into how the current Administration intends to proceed with implementing its new spending and policy priorities, including EO 14173. But there remains a lack of clarity on how the EO 14173 will affect federal assistance and procurement contracts that was echoed in the February 12, 2025 Congressional Research Service report, Rescission of Executive Order 11246, “Equal Employment Opportunity”: Legal Implications.
Affected Entities
EO 14173 targets prime contractors and grant recipients, including procurement contracts filtered through Federal Acquisition Regulation (FAR)-based executive agencies and departments. However, EEO 14173 will also apply to non-FAR-based contracts and any contractual arrangement between the U.S. government and a private entity, whether a procurement contract, assistance agreement, cooperative agreement, or grant. It is also likely that the effects will filter down to subcontractors and subrecipients. Thus, all recipients of government funding should keep apprised of the new Administration’s directives.
Implications for DEI Programs and Initiatives
The most immediate impact will likely be the prohibition on “unlawful” or “illegal” DEI programs and policies that seemingly violate federal antidiscrimination laws. This is not merely a prohibition on DEI efforts involving government-funded projects but a prohibition on parties to a government contract conducting any DEI program in violation of federal antidiscrimination laws. To be sure, it is not clear what DEI-related initiative might constitute a violation of current antidiscrimination law. We can expect forthcoming litigation regarding the application and constitutionality of such restrictions. Additionally, given that EO 14173 makes no mention of any cost recovery associated with federal contractors’ and grant recipients’ efforts to shutter DEI programs, we can also expect potential cost recovery disputes to be forthcoming.
Notably, this prohibition is not effective immediately. Rather, it will go into effect for new contracts or upon amendment/modification of existing contracts. Beyond the notices issued by some federal agencies immediately following EO 14173’s issuance, prime contractors will likely receive contract amendments/modifications from their contracting officers. Although contractors have the option to accept or refuse the amendments/modifications, an outright rejection may result in contract termination for the “convenience” of the government. Further, it is likely that each agency will begin issuing interim clauses implementing EO 14173, while the FAR Council will be prompted to issue a uniform Federal Register notice that seeks to delete existing FAR clauses such as FAR 52.222-26 (Equal Employment Opportunity) and replace them with other clauses that express the President’s directive, including the required FCA-based materiality certification.
Implications for Affirmative Action in Hiring
EO 14173 also revoked Executive Order 11246’s requirements for equal employment opportunity/affirmative action (EEO/AA) and OFCCP audits of the hiring practices of covered federal contractors and grant recipients. EO 14173 requires the OFCCP to halt enforcement and purports to rescind EO 11246’s reporting obligations under government contracts. However, reporting obligations for those with disabilities (under Section 503 of the Rehabilitation Act) and veterans (under the Vietnam Era Veterans’ Readjustment Assistance Act) will remain in effect. These contract changes will become effective for all new contracts, grants, and modifications of existing contracts following a 90-day grace period (expiring April 21, 2025).
Importantly, these EEO/AA obligations are not merely contractual requirements. The EEO/AA obligations also implicate Title VII of the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex, or national origin, and other regulations, such as 2 CFR 200 Appendix II, which applies the EEO/AA obligations to construction contracts. These statutory and regulatory obligations will remain in effect despite any contract modifications unless they, too, are modified by statutory changes or regulatory processes. Due to this apparent conflict, legal challenges to the validity of the executive action are likely.
Preparing for Changes
Despite the uncertainty following EO 14173’s issuance among many actions affecting federal agreements, entities that receive government funding can still proactively prepare for the upcoming changes by taking the following steps:
- Get to know the applicable program or agency responsible for the funding and learn the mechanics behind how the funding is provided and distributed. Through this knowledge and understanding, there may be useful insight into how the first round of changes will go into effect.
- Prime contractors and recipients should prepare to accept amendments/modifications and know that termination may result if refused.
- Prime contractors and recipients should take stock of all subcontracts and subawards under their federal contracts/awards and be prepared to amend/modify those agreements and/or obtain certifications from subcontractors and subrecipients to comply with any prime contract amendments or government directives.
- Prepare to eliminate affirmative action plans under EO 11246, including the use of outside consultants hired to maintain compliance, as well as any other subcontracts whose scope might run afoul of a presidential priority.
- Review DEI initiatives (or similar programs and practices) that may violate EO 14173. Again, this may change based on current or new litigation.
- Keep apprised of statutory and regulatory developments, including the expected legal challenges.
Executive Order, Action & Proclamation Task Force
Alston & Bird's multidisciplinary Executive Order, Action & Proclamation Task Force advises clients on the business and legal implications of President Trump's Executive Orders.
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