CLIENT ALERT
By Attorneys Amy Crafts and Jennifer Moeckel
This client alert focuses on one aspect of the many Executive Orders newly signed by President Trump as this issue is particularly important for federal contractors and grantees to understand. Executive Order 14173 indicates the federal False Claims Act will be utilized to investigate and penalize federal contractors or grantees that do not eliminate any unlawful programs related to diversity, equity and inclusion (“DEI”). This alert discusses the Executive Order and its potential implications, which are significant and could be easily overlooked by those unaware.
What Does the Executive Order Require?
Executive Order 14173 seeks to eliminate “illegal preferences and discrimination” in DEI programs without identifying what it considers “illegal DEI.” Among other things, this Executive Order requires federal agencies add terms to every contract and grant award that will facilitate False Claims Act enforcement. Most notably, the contracting party or grantee must certify in writing that “it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” While this may sound routine and might not raise any red flags at first glance, it is something that requires careful attention.
Certifications are an important tool for the government in proving violations of the False Claims Act. If a contracting party or grantee signs a certification that is not completely accurate – for example, by certifying it has no DEI programs with illegal preferences or discrimination even if its DEI program includes preferences – the certification could be viewed by the government as a false statement that violates the False Claims Act.
Financial Exposure for False Claims Act Violations
The False Claims Act is a powerful civil statute that makes it more expensive to break the law than to comply with it. If the government wins a False Claims Act lawsuit, the defendant must pay treble (triple) damages, penalties for each violation (adjusted for inflation and currently set at $13,946-$27,894 per false claim), and costs and legal fees incurred by the government while investigating the allegations and bringing the lawsuit. In other words, the dollar amounts add up very quickly for entities facing False Claims Act enforcement.
Incentives for Whistleblowers
In addition to imposing triple damages, penalties, and legal costs, the False Claims Act financially incentivizes whistleblowers to bring alleged violations to the government’s attention by filing lawsuits. In fact, this is one of the most effective ways the government learns of potential wrongdoing. In fiscal year 2024 alone, 979 federal lawsuits by whistleblowers (called qui tam lawsuits) were filed under the False Claims Act, and the Department of Justice reported settlements and judgments exceeding $2.4 billion in these and earlier-filed qui tam suits.
What does this mean in the DEI context? It means that employees and former employees have an incentive to report to the federal government any illegal DEI programs they believe to still be in existence.
What Should Government Contractors and Grantees Do?
While multiple lawsuits have been filed challenging the constitutionality of the Executive Order, it is important to take immediate steps in this period of uncertainty. Any federal contractors or grantees should:
- Review DEI policies to ensure they are nondiscriminatory and do not include any illegal preferences.
- Review any new federal contracts, grants, and any new amendments to existing federal contracts or grants to learn whether they contain certifications regarding DEI programs. If so, elevate the contracts, grants, or amendments to the appropriate management in each relevant department of your organization before signing to ensure the accuracy of the certification.
We continue to monitor this evolving area and are available to assist with specific questions.
This article is intended to serve as a summary of the issues outlined herein. While it may include some general guidance, it is not intended as, nor is it a substitute for, legal advice.