A new federal executive order (EO) issued on March 26, 2026 introduces additional compliance considerations for institutions that hold or seek federal contracts. Under this new EO, Diversity, Equity, and Inclusion (DEI) programs and practices could constitute unlawful discrimination. The EO specifically targets what it defines as racially discriminatory DEI activities, meaning disparate treatment based on race or ethnicity in areas such as hiring and promotion, contracting and vendor selection, program participation (including training or leadership programs, educational opportunities, clubs, and associations), or the allocation or deployment of resources. The EO requires federal agencies to increase scrutiny on how such DEI programs are structured, documented, and implemented, and to require contractual terms ensuring compliance. Other areas, including programs related to disability and veteran status, remain governed by existing federal requirements and are not directly impacted.
This EO aligns with a broader federal shift toward increased enforcement activity:
- The Equal Employment Opportunity Commission (EEOC) is expanding investigations into workplace practices, including DEI initiatives.
- The Department of Justice (DOJ) has indicated that it will prioritize enforcement related to compliance with conditions attached to federal funding.
- Investigations may occur prior to litigation, often through subpoenas and audits.
What’s Changing
New Contractual Certification Requirements
Federal agencies must now include a clause in contracts requiring contractors to certify that they do not engage in racially discriminatory DEI activities, as defined by the EO. Subcontracts at all tiers must include this clause.
Expanded Oversight and Audit Authority
Pursuant to the new contractual certification requirements, federal agencies may request access to institutional records, including documentation related to DEI programs and practices, to ensure compliance.
Increased Compliance Risk
Noncompliance could result in contract termination or suspension, debarment from future federal funding, and potential exposure under the False Claims Act (FCA).
Mandatory Reporting Obligations
Institutions may be required to report to the contracting federal agency any potential noncompliance, including activities involving subrecipients.
What USC Researchers and Administrators Should be Aware Of
Revisions to Agency Guidance
Federal agencies have until April 25 to implement the requirements. USC faculty and research administrators should be aware that revised terms or new requirements may be issued as a result and should promptly inform their DCG Officer if any agency requests additional certifications or raises related questions.
Increased Emphasis on Documentation
Ensure that program design, participation criteria, and decision-making processes are clearly documented and compliant with federal law.
Heightened Scrutiny of Federally Funded Activities
Activities tied to federal awards, including subawards and collaborations, may be subject to additional review.
Next Steps and Timeline
Further updates will be shared as federal guidance evolves and institutional impacts become clearer. DCG is working closely with OGC to ensure all compliance requirements are in place.
As of April 25, 2026 – Federal agencies required to begin including the mandatory clause in contracts.
May – July 2026 – Federal agencies shall issue additional regulatory guidance.
Questions?
If you have any questions, please feel free to contact your DCG Officer.