Federal Contractors and Grant Recipients: Pause and Assess False Claims Act Risk Before Completing DEI Certifications

Since the inauguration, the Trump administration has shone a spotlight on Diversity, Equity, and Inclusion (DEI) policies, starting with the January 21, 2025, Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity. We previously provided an in-depth review of that executive order and the Defending Women From Gender Ideology and Restoring Biological Truth to the Federal Government executive order in our prior alert, Executive Orders Take Aim at DEI. This alert focuses on one specific component to the "Ending Illegal Discrimination" executive order that should be of particular interest to federal contractors and recipients of financial assistance awards alike – the DEI certification requirement and the administration’s promise to escalate enforcement of “illegal DEI and DEIA” through the False Claims Act.

Executive Order 14173 mandates two new requirements for federal contractors and grantees:

1. Certification Requirement: Contractors and grantees must certify that they do not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.
2. Contractual Term: Contractors and grantees must agree, through a new term in their contracts, that “compliance in all respects with all applicable Federal anti-discrimination laws is material to the government’s payment decisions,” making noncompliance a basis for claims under the False Claims Act.

For Contractors: The executive order provided a phase-in period, allowing contractors to continue complying with the pre-Trump administration regulatory scheme until April 20, 2025. The FAR Council has not yet taken steps to implement this directive for federal contracts.

For Grantees: No phase-in period was provided for grantees, and some funding agencies are already requesting grant recipients to provide this certification even before the issuance of any guidance or initiation of a formal proceeding establishing a certification requirement. The specific request has varied, with some officials providing template language and others not.

What is the False Claims Act?

The False Claims Act (FCA) is a federal law intended to prevent fraud against the government. In FCA lawsuits, which can be brought by the federal government or an individual whistleblower, triple damages can be awarded against a person or entity who knowingly submits, or causes to submit, false claims for payment to the government. Under the FCA, “knowingly” submitting false claims includes acting with deliberate ignorance or reckless disregard for the truth or falsity of the information provided, and actual knowledge of noncompliance is not necessarily required. Under the executive order, submitting a DEI certification without thoroughly reviewing DEI programs, policies, and initiatives to ensure they do not violate Federal anti-discrimination laws raises the risk of inadvertent noncompliance and potential FCA claims.

Practice Tips for Contractors and Grantees: Due to the lack of specific definitions and shifting guidance on what activities are prohibited, it may be challenging to defend the accuracy of a certification made today when viewed through a future lens. Whether faced with a specific request for a certification or preparing for a future requirement, contractors and grantees alike can take some practical steps in response.

• Communicate with Federal Agencies. Engage in open communication with relevant federal agencies to clarify any uncertainties regarding a certification request. Contractors and recipients should monitor public statements from the relevant federal agencies regarding certification and contractual requirements.
• Due Diligence. Conduct thorough due diligence before providing any certification. Review existing policies and procedures carefully with the assistance of knowledgeable counsel and under attorney-client privilege. With the promise of additional scrutiny enforcement under the FCA, engaging counsel to guide your due diligence will mitigate future risk.
• Proceed Cautiously. Think carefully before providing a certification that is not contractually required. From a practical perspective, if the agency has frozen its funding and has not yet affirmatively committed to “unfreezing” the funding for your project, there may be little upside to providing a certification now, and the requirements could be subject to change.  On February 3, 2025, a constitutional challenge to Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, including a constitutional challenge to the certification requirement, was filed in federal court in Maryland. And as of February 10, 2025, a federal court in Rhode Island has demanded the immediate release of frozen funding.
• Establish Control Points. Proper internal controls will limit which employees in an organization have authority to provide a certification on behalf of the organization.
• Employee Training. Provide training to employees and management on the implications of the executive order. Ensure key staff understand the importance of an accurate certification and the internal procedures to be followed before submitting a certification and how to monitor compliance going forward.
• Draft an Accurate Statement. When a template certification is provided, verify whether specific verbiage is required. If not required, or when no template is provided, draft a statement that you are confident is accurate and supported through documentation. For example, if your certification statement is limited to project activities, explicitly tailor it specific to the project.
• Record-Keeping. Maintain records of all compliance efforts. This includes documentation of policy changes, training sessions, and internal audits. When counsel is involved, be sure to mark privileged records appropriately.
• Consult with a Lawyer. Consult with legal experts to navigate the complexities of the anti-discrimination laws, the executive orders and responding to certification requests. Legal counsel can provide guidance on compliance and help mitigate risks.

If you have any questions or need further assistance, please do not hesitate to contact our office.

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