I. Scope of Executive Order 14173
Executive Order 14173, issued on January 21, 2025, aims to end illegal discrimination and restore merit-based opportunities by ceasing diversity, equity, and inclusion (DEI) policies, programs, mandates, and activities that the President alleges prioritize race and sex over individual merit in federal contracting and employment as well as the private sector. The order also revokes several previous executive orders related to DEI.
II. How the Executive Order Implicates the False Claims Act
- Inclusion of Compliance Terms in Contracts, Grants, and Funding Awards: Executive Order 14173 mandates that the head of each federal agency must include two key provisions in every contract, grant, or award for funding: (1) a term acknowledging that “compliance in all respects” with all applicable federal anti-discrimination laws is “material” to the government's payment decision for purposes of the federal False Claims Act, and (2) a requirement that the party receiving payment certify that “it does not operate any programs promoting DEI that violate any applicable federal anti-discrimination laws.” The Executive Order clearly conveys this administration's view that over the past six decades many practices developed under the banner of DEI are illegal race- or sex-based preferences or are otherwise unlawfully discriminatory. Which particular practices will be targeted as discriminatory remains to be seen. We are still waiting for additional guidance regarding what constitutes compliance with federal anti-discrimination laws under this administration.
- Materiality of Compliance: By making compliance with federal anti-discrimination laws material to the government's payment decisions, and by including a certification requirement, the Executive Order clearly seeks to involve the very substantial enforcement scheme that comes with the Federal False Claims Act (FCA), 31 U.S.C. § 3729(b)(4). These provisions are intended to directly tie compliance with federal anti-discrimination laws to the financial transactions between the government and federal contractors or funding recipients; serve as a strong deterrent against non-compliance; and promote adherence to the Executive Order.
III. How the False Claims Act May be Triggered
The FCA provides that anyone who knowingly submits a false claim
for payment to the federal government can be liable for significant
criminal or civil penalties. A false claim can include any request
for payment that is based on a false statement or fraudulent
conduct. The impact of this Executive Order is to make the failure
to comply with federal anti-discrimination laws, as they are now
being interpreted by this administration, or the false
certification of compliance, to be a violation of the FCA. The FCA
imposes significant penalties (e.g., treble damages, statutory
per-claim penalties, attorney fees) for submitting false claims to
the government. Criminal enforcement is carried out primarily by
the Department of Justice (DOJ) and the U.S. Attorney's
Offices around the country.
The qui tam provision of the FCA allows private individuals, known
as “whistleblowers” or “relators,” to file
civil lawsuits on behalf of the federal government against entities
or individuals who have allegedly submitted false claims to the
government. If a whistleblower does bring a case, the federal
government has the option to intervene in the case and successful
whistleblowers may receive a significant portion (e.g., up to 30%)
of any recovered damages, plus attorney's fees, as a reward
for their efforts.
Historically, the FCA has been used to recover billions in federal
healthcare fraud or government contracting fraud cases, for
example, where healthcare services are not performed, or government
contracts provide fraudulently shoddy goods. By mandating that
unlawful DEI policies and practices can trigger FCA liability, the
administration is effectively enlisting private individuals to
magnify its enforcement efforts and rewarding them with substantial
financial bounties. This undoubtedly will incentivize
whistleblowers and activists to bring cases challenging DEI
activities in companies and institutions of all sizes.
Preliminary Recommended Actions:
- Assess whether you are in receipt of any federal funding;
- Review applicable contracts and agreements in connection with the receipt of federal funding, including any requiring ongoing/periodic certifications;
- Review your employment policies and procedures for compliance with anti-discrimination laws, including policies and procedures relating to DEI;
- If you maintain a dedicated procurement function and team, ensure appropriate training for those roles, especially as it relates to required certifications; and,
- Ensure varied, accessible mechanisms for internal reporting, including, for example, employee hotline tools.
We will provide more analysis and advice as the relevant agencies release more specific guidance and interpretation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
