Washington: U.S. President Donald Trump has signed an executive order barring federal contractors from engaging in what the administration calls “racially discriminatory” diversity, equity and inclusion (DEI) practices — a move that directly affects how companies hire and operate in government-contracted work.
The executive order requires all federal contracts to include a clause prohibiting contractors and subcontractors from engaging in DEI activities that involve “disparate treatment based on race or ethnicity.”
DEI — short for diversity, equity and inclusion — refers to workplace policies and programmes designed to improve representation of historically underrepresented groups, including racial minorities, women and other disadvantaged communities.
In the U.S., this often includes targeted hiring, training, mentoring and promotion efforts aimed at addressing long-standing social and economic inequalities.
However, the Trump administration has framed such policies as discriminatory if they treat individuals differently based on race or identity rather than merit.
Under the new directive, contractors must certify compliance and provide access to records for verification. Failure to comply could result in contracts being “cancelled, terminated, or suspended,” and companies may be barred from future government work.
The order also requires contractors to report potential subcontractor violations and to take corrective action as directed by federal agencies.
The White House said the move is aimed at ensuring “merit-based and efficient contracting and employment.” It argued that DEI practices impose “real costs on the American people” by restricting hiring pools and increasing operational costs.
“DEI activities are not only unethical and often illegal, but also cause inefficiencies, waste, and abuse,” the executive order states.
The administration further said such programmes increase workforce turnover and undermine collaboration by prioritising identity over performance.
To enforce compliance, the Office of Management and Budget (OMB) will issue guidance to federal agencies and identify sectors at higher risk of engaging in prohibited DEI practices.
The Attorney General has been directed to prioritise cases under the False Claims Act against contractors found in violation. The order also calls for a swift review of related civil actions brought by private individuals.
Additionally, the Federal Acquisition Regulatory Council will amend procurement rules to incorporate the new clause and remove conflicting provisions.
President Trump reiterated his broader policy stance, saying: “We will terminate every diversity, equity, and inclusion program across the entire Federal Government.”
The White House noted that similar actions have already been taken across the armed forces, foreign service, education policy and federal hiring systems since early 2025.
The order is grounded in the Federal Property and Administrative Services Act, which allows the President to set procurement policies to promote efficiency in government contracting.
For Indian companies and professionals working with U.S. federal contractors — including in IT, consulting, and outsourcing — the shift could affect hiring frameworks and compliance requirements for government-linked projects.
DEI has been a major feature of corporate America since 2020, particularly after racial justice protests. While supporters view it as a corrective measure for systemic bias, critics — including the current administration — argue it risks introducing reverse discrimination and inefficiency.
(IANS)
