Overview
Significant changes to federal contracting rules are reshaping how businesses interact with the U.S. government, particularly when it comes to compliance, workforce policies, and pricing strategies.
These changes stem largely from Executive Order 14173 (EO 14173), signed in January 2025, which revokes long‑standing affirmative action requirements and introduces new certification obligations for contractors.
For companies that rely on federal funding or work on federally supported projects, understanding the new expectations is critical to staying compliant and minimizing risk.
How EO 14173 Eliminates Affirmative Action Requirements for Federal Construction Contractors
For nearly 60 years, Executive Order 11246 required certain federal contractors to maintain affirmative action programs to promote equal employment opportunities for women and minorities. It was considered a cornerstone of the Civil Rights Era and shaped hiring practices for decades.
EO 14173, however, marks a significant departure. The order:
- Revokes EO 11246 and other affirmative action‑related requirements;
- Directs agencies to require contractors to certify that they do not maintain any diversity, equity, and inclusion (DEI) or affirmative action programs;
- Declares DEI initiatives inconsistent with federal anti‑discrimination laws; and
- Makes this certification “material,” meaning it affects whether a contractor can be paid.
While EO 14173 does not override state laws, it does directly influence eligibility for federal contracts. Contractors who fail to comply risk losing federal work and may also expose themselves to liability under the False Claims Act if they provide inaccurate or incomplete certifications.
Increased False Claims Act Risk for Construction Contractors Under EO 14173
Because the certification is now tied to payment, providing false or mistaken statements about DEI or affirmative action programs could trigger False Claims Act liability. The consequences can be steep:
- Civil penalties and treble damages;
- Whistleblower (qui tam) lawsuits filed by current or former employees;
- Potential debarment from future government contracting.
Contractors with any DEI‑related language, training materials, or employee affinity programs must carefully review what they maintain and how it is described.
Federal Requirements That Still Apply: Veteran and Disability Compliance for Contractors
Importantly, not every affirmative action or nondiscrimination requirement has been eliminated. Two major federal statutes enacted by congress remain fully in effect:
- Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA), which prohibits federal contractors and subcontractors from discriminating in employment against protected veterans and requires employers take affirmative action to recruit, hire, promote, and retain these individuals.
- Section 503 of the Rehabilitation Act, which prohibits federal contractors and subcontractors from discriminating in employment against individuals with disabilities and requires employers take affirmative action to recruit, hire, promote, and retain these individuals.
Covered contractors must still maintain self‑identification processes, outreach programs, utilization goals, job listing requirements, and required taglines for these protected groups.
Conflicting State and Federal Rules: Compliance Challenges for Multistate Construction Firms
While federal rules have changed, many states and cities, including Illinois, California, New York, Wisconsin, Chicago, and Minneapolis, still enforce their own affirmative action or equal opportunity requirements. Contractors working across jurisdictions should expect conflicting standards and may need to segment federal and state‑funded work across different contracts or entities to avoid compliance conflicts.
Key Compliance Steps Construction Companies Should Take Now
To navigate this evolving landscape, companies should:
- Review and revise policies, handbooks, and training materials.
- Evaluate employee resource groups and ensure equal access.
- Monitor updated contracting language from federal agencies.
- Determine whether certain analyses should occur under attorney‑client privilege.
- Focus on merit‑based hiring and promotion criteria.
Watch the full presentation: Government Contracting, Anti-DEI Implications & Pending Tariff Developments
