1. Affirmative Action and DEI: A Dramatic Reversal
Revocation of Executive Order 11246
Trump’s January 21 EO, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” rescinded Lyndon B. Johnson’s 1965 Executive Order 11246, which mandated affirmative action plans (AAPs) for federal contractors. Contractors are no longer required to develop AAPs for women and minorities, though obligations under the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act (for individuals with disabilities) remain 31112.
DEI Certification Requirements
Contractors must now certify compliance with federal anti-discrimination laws and affirm they do not operate DEI programs that violate these laws. Failure to comply risks False Claims Act (FCA) liability, including penalties of up to $28,619 per violation and treble damages. The administration has explicitly tied DEI compliance to payment decisions, incentivizing whistleblowers to file qui tam lawsuits 5712.
Impact on Training and Hiring
Agencies must terminate DEI-related grants and contracts, and contractors face heightened scrutiny for programs perceived as promoting “race-based preferences” or “gender ideology.” The Department of Justice is preparing a strategic enforcement plan to target “egregious” DEI practices by May 2025 711.
2. Workforce Reductions and the Role of DOGE
Federal Hiring Freeze and Agency Dismantling
A 90-day hiring freeze (excluding national security roles) and plans to reduce the federal workforce have disrupted operations at agencies like USAID and the Consumer Financial Protection Bureau (CFPB). The Trump administration aims to shrink USAID from 10,000 employees to a few hundred, though courts temporarily blocked layoffs for 2,000 staffers 112.
Elon Musk’s “Department of Government Efficiency” (DOGE)
DOGE, rebranded from the U.S. Digital Service, has targeted contractors through payment halts and lease terminations. For example, Musk announced a freeze on payments to contractors linked to USAID and the CFPB, triggering litigation and injunctions from federal courts 112.
3. Policy Shifts Impacting Contractors
Foreign Aid and Energy Priorities
- A 90-day freeze on foreign assistance programs has left contractors in limbo, with USAID staff placed on administrative leave and grants paused 112.
- The “Unleashing American Energy” EO terminated Biden-era clean energy mandates, including electric vehicle (EV) procurement requirements, redirecting focus to fossil fuel projects 412.
Immigration and Labor Rules
- The administration rescinded Obama-era protections for service workers, eliminating the requirement to offer jobs to incumbent employees during contract transitions 612.
- Stricter immigration audits and I-9 compliance checks are expected, increasing risks for contractors reliant on foreign labor 26.
4. Legal and Financial Risks
False Claims Act Exposure
The linkage between DEI certifications and FCA liability creates unprecedented risks. Contractors could face claims alleging that DEI programs—even those previously lawful—violate anti-discrimination laws. Courts will weigh materiality under the Escobar standard, but the administration’s emphasis on DEI as a payment condition strengthens the government’s position 57.
Indirect Cost Caps
The National Institutes of Health (NIH) slashed indirect cost rates for grants from ~30% to 15%, pressuring contractors to reduce administrative overhead. This change could force renegotiations of existing agreements 12.
5. Recommendations for Contractors
- Audit DEI Programs: Review policies for potential conflicts with anti-discrimination laws, focusing on quotas or race/sex-based preferences 57.
- Monitor Agency Guidance: Await clarity from the OFCCP and OMB on permissible DEI activities and certification processes 312.
- Prepare for Workforce Changes: Anticipate disruptions from hiring freezes and agency downsizing, particularly in foreign aid and climate-related sectors 14.
- Strengthen Compliance Protocols: Document DEI audits, train staff on FCA risks, and establish whistleblower retaliation safeguards 711.
Conclusion
The Trump administration’s rapid policy shifts have left federal contractors navigating a maze of legal, financial, and operational challenges. While deregulation and efficiency drives may create opportunities in tech and energy sectors, the aggressive targeting of DEI and expanded FCA liability demand caution. Contractors must stay agile, leveraging legal counsel and proactive compliance strategies to mitigate risks in this volatile landscape.
