The Anti-DEI Executive Order collides with Virginia's SWaM bill
The White House EO makes compliance "material" to contract payments, with agency adoption in 30 days
Federal contractors across the country face harsh consequences from the White House executive order published Thursday, “Addressing DEI Discrimination by Federal Contractors.” The Federal requirements may go into effect as early as April 25. For contractors that work both on Federal projects and Virginia state contracts, the timing puts the Executive Order on a collision course with Virginia Governor Abigail Spanberger’s April 13 deadline to sign into law HB 61 and its new SWaM contracting targets.
The White House’s order makes anti-DEI requirements “material” to the Government’s payment on contracts. This escalates the penalties available to the Federal government as compared to the certification required by the Day One anti-DEI executive order. That January 21, 2025 Executive Order required a contractor certification about not promoting DEI.
And, if Governor Spanberger signs HB 61, prime contractors in Virginia may face 50% subcontracting targets for small women-owned and minority-owned contractors at the exact moment that they risk heavy penalties for “racially discriminatory” DEI practices—including subcontracting and vendor agreements—at the Federal level.
The Federal mandate requires agencies to adopt it within 30 days. Then the FAR Council is ordered to issue a FAR clause by deviation after another 30 days. Violating the requirements will be punishable by contract cancellation and termination. Agencies will “take appropriate action to suspend and debar” contractors found in violation. And the Department of Justice would consider bringing actions under the False Claims Act, while conducting prompt review of qui tam actions brought by whistleblowers.
A significant escalation in both directions
The White House Executive Order last week escalates the framework from the January 2025 order, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.” The earlier order directed agencies to include a contract term requiring a contractor to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” That Certification Provision has been caught up in litigation, including a case decided last month at the Fourth Circuit Court of Appeals. The Fourth Circuit lifted an injunction, which partially explains how the White House felt empowered to publish this order now. With the court’s decision coming so recently, though, few—if any—agencies have implemented the Certification Provision.
Last week’s order now mandates a uniform, enforceable clause specifically for Federal contracts that explicitly carries False Claims Act liability. It also attempts to address a common question about the January 2025 order: What exactly is illegal DEI? The latest order limits coverage to “racially discriminatory DEI”—thus leaving sex-based programs unaddressed. And it includes lengthy definitions for an “activity”—to include recruitment, employment, contracting, program participation, and allocation of resources—and “program participation.” Programs include training, mentoring, leadership development programs, educational opportunities, clubs, associations, and similar opportunities that are sponsored or established by the contractor.
Meanwhile, Virginia’s HB 61 seeks to solidify the Commonwealth’s SWaM (Small, Women-owned and Minority-Owned) program. The state has fallen short of the 42% SWaM goal put in place by then-Governor Terry McAuliffe in 2014. So the bill makes that 42% a statutory goal and requires SWaM set-asides between $10,000 and $200,000. Virginia agencies and covered institutions would be required to increase their SWaM utilization rates by 3% each year until attaining the 42% target. Agencies can use set-asides and price preferences to increase work with certified firms. Then, for non-SWaM primes, the bill would set a 50% SWaM subcontracting target. Governor Spanberger has until April 13 to take action on the House- and Senate-passed bill.
All this happens at the same time that anti-DEI sentiment is focusing intense scrutiny on SBA’s 8(a) program, halting 8(a) program approvals, and fueling a court challenge to the NMSDC supplier certification program; I discussed those issues in last week’s livestream.
The EO promises more audits, sector focus
In addition to making compliance “material,” the new executive order heightens contractor risk in four important ways.
First, through a clause providing for broad investigatory authority, the order will lead to more audits. The clause would require contractors to furnish “all information and reports, including providing access to books, records, and accounts” to demonstrate compliance.
Second, contractors in certain industries will face more structured reviews. The order states that OMB, DOJ, the White House DPC, and EEOC will identify “economic sectors” that have engaged in racially discriminatory DEI in the past. Those agencies will issue guidance to agencies on best practices to ensure compliance within those sectors. “Economic sectors” doesn’t usually mean what the order suggests; it’s likely that the order has specific industries in mind, like construction. This “economic sectors” language might even lead to reverse disparity studies, where the government uses data like EEO-1 reports to target audits.
Third, the clause has a snitch rule. Not only are primes required to flow down the clause to subcontractors and lower-tier subcontractors, but they also would report on subcontractors’ “known or reasonably knowable conduct” that “may violate” the clause. That puts into play not just confirmed violations, but also suspicion of violation.
And, finally, the order directs the FAR Council to use class deviations to fast-track the clause into the FAR within 60 days. The FAR Council used mass class deviations for the FAR Overhaul, a method that bypasses the notice-and-comment process required by the Administrative Procedure Act and the OFPP Act. The order also directs the FAR Council to remove FAR provisions that “conflict or are inconsistent with” the clause created by the order. This could affect Small Disadvantaged Business goals in subcontracting plans. That’s a complex issue. But because of the requirement for a class deviation process, the FAR Council will need to put out initial guidance before getting public comments that could help explain the complexity.
What happens in the next 30 days
The order tells agencies to implement within 30 days. But, as with the January 2025 Certification Provision, that might be delayed by litigation. Given the expedited timeline, though, contractors should review their programs to ascertain their risk. Some companies already went through this last year after the January 2025 order. Now they know how the Federal government is defining important terms.
Under the new definitions, areas to review include
employee-resource/affinity groups and mentoring programs;
subcontractor selection processes and documentation;
training curricula; and
sponsorships of external programs.
Then there’s the snitch rule. Not only do contractors need to certify their own conduct, but they also will report on the “reasonably knowable” conduct of subcontractors that “may violate” the clause. The FAR Council’s class deviations—due in 60 days—would presumably include specific steps on what those reports would look like and what contractors would need to do in advance to “reasonably know” what its subcontractors do. Or at least that's what public comments would say, if the FAR Council were able to review them.
By the end of those periods, we should know whether the new Virginia SWaM program has been enacted into law. The answer makes a big difference to firms that want to do business both in Virginia and with Federal agencies. And it could change the direction of these anti-DEI actions for the foreseeable future.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com.
This article is for informational purposes only and does not constitute legal advice.