This is the third update we are issuing regarding the March 26 Executive Order, Addressing DEI Discrimination by Federal Contractors. Our first update analyzed the EO itself and its enforcement architecture. Our second addressed the IBM $17 million False Claims Act settlement. Now, a 49-page federal complaint has been filed challenging the EO’s constitutionality and the legality of its FCA provision.

A coalition of plaintiffs led by the National Association of Diversity Officers in Higher Education, the American Association of University Professors, and the National Association of Minority Contractors filed suit in the U.S. District Court for the District of Maryland challenging the EO. The case is National Ass’n of Diversity Officers in Higher Education v. Trump, Case No. 8:26-cv-01532 (D. Md.).

For ANC, tribal, and NHO entities, this lawsuit might matter for two reasons. First, it could produce an injunction that slows or stops enforcement of the EO, including the contract clause which is supposed to take effect by April 25. Second, and more immediately useful, the complaint’s ultra vires challenge to the FCA provision articulates a legal theory that, if successful, would remove the most dangerous enforcement tool the EO creates. For those following the EO, understanding these issues might be of interest.

The Three Claims

The complaint brings three counts. Here is what each one does:

Count One: First Amendment Overbreadth

The plaintiffs argue that the EO’s definition of “racially discriminatory DEI activities” is so broad that it sweeps in a substantial amount of constitutionally protected speech and association. The definition covers “disparate treatment based on race or ethnicity” in recruitment, employment, contracting, “program participation,” and “allocation or deployment of an entity’s resources.” The complaint contends this captures activity that does not violate any federal anti-discrimination law—including voluntary employee associations, training programs that discuss race, recruitment efforts designed to expand applicant pools, resource allocation that addresses community needs, and academic research on racial disparities in health outcomes. Because contractors face contract cancellation, debarment, and FCA liability for engaging in this protected expression, the complaint argues, the EO chills a massive volume of lawful speech.

Count Two: Content-Based Discrimination and Unconstitutional Conditions

This claim argues that the EO targets speech because of its content, specifically, speech about race and ethnicity, and conditions federal contract eligibility on contractors agreeing not to engage in that speech. The complaint points out that the EO does not restrict speech on any other topic. A contractor can say whatever it wants about any other subject. But if it engages in expression that touches on race or ethnicity in ways that the Administration defines as “DEI,” it faces contract termination, debarment, and FCA liability. The complaint argues this is a textbook unconstitutional condition: the government is leveraging its spending power to suppress disfavored speech.

The complaint also argues that the EO unlawfully coerces prime contractors into suppressing their subcontractors’ speech by requiring primes to report “any subcontractor’s known or reasonably knowable conduct that may violate” the clause. That reporting requirement turns prime contractors into enforcement agents—and creates a direct incentive for primes to pressure subcontractors to silence race-related expression rather than risk their own contracts.

Count Three: Ultra Vires—The FCA Provision Exceeds Presidential Authority

The complaint argues that Section 3(6) of the EO, the provision requiring contractors to “recognize” that compliance with the DEI clause is “material to the Government’s payment decisions for purposes of” the False Claims Act, 31 U.S.C. § 3729(b)(4), exceeds the President’s authority. The sole statutory authority cited by the EO is the Federal Property and Administrative Services Act (the “Procurement Act”), 40 U.S.C. § 101 et seq. The Procurement Act gives the President authority to “prescribe policies and directives” that are “consistent with” the statute’s purpose of providing “an economical and efficient system” for federal procurement. Under Fourth Circuit precedent in Liberty Mutual Insurance Co. v. Friedman, 639 F.2d 164 (4th Cir. 1981), there must be a “close nexus” between the President’s directive and the Procurement Act’s efficiency purpose.

The complaint argues no such nexus exists. The EO makes no factual findings explaining how imposing FCA liability on contractors for DEI-related activity promotes efficiency in government contracting. It does not explain why FCA liability is necessary beyond the other enforcement tools already in the EO (contract termination, suspension, debarment). And critically, neither the Procurement Act nor the FCA itself authorizes the President to declare by executive order that a particular contract clause is “material to the Government’s payment decisions”—that is a factual determination that the FCA requires to be established in litigation, not pre-determined by executive fiat.

If this claim prevails, the FCA provision of the contract clause would be struck. That would not eliminate the EO’s other enforcement mechanisms; contract termination and debarment would remain, but it would remove the qui tam whistleblower incentive and the direct pathway to treble damages that makes this EO so much more dangerous than prior executive actions. It would take the financial bounty off the table for employees looking to file sealed complaints, and it would significantly narrow DOJ’s enforcement toolkit.

Implications for ANCs, Tribes, and NHOs

This lawsuit is potentially useful to ANCs, Tribes, and NHOs in several ways:

• • If the court enjoins the EO, enforcement may stop for everyone, depending on the scope and extent of the injunction. A broad injunction barring enforcement of the EO would prevent implementation of the contract clause pending resolution of the case. That would buy time for the entire federal contracting community, including ANCs and tribal entities, to prepare compliance frameworks, develop documentation, and train personnel before the clause takes effect.

• • The ultra vires claim could eliminate FCA liability. If the court strikes the FCA provision as exceeding the President’s Procurement Act authority, the qui tam threat, as a dangerous enforcement threat for ANCs and tribal entities with hire preferences, goes away. Contract termination and debarment risk would remain, but the financial incentive for employees to file whistleblower suits based on misunderstandings of shareholder or tribal member preferences would be significantly reduced.
  • The overbreadth argument supports our analysis. The complaint’s argument that the EO captures lawful activity—voluntary associations, non-exclusionary recruitment, resource allocation to specific communities, discussion of race in professional contexts—reinforces the point we have made in prior articles: that shareholder hire preferences, which are lawful under Morton v. Mancari, are exactly the kind of activity that could be swept in by an overbroad definition that equates any race-adjacent employment practice with “DEI discrimination.”
  • The April 25 deadline is days away. The EO requires agencies to insert the new contract clause within 30 days, which means by April 25, 2026. The plaintiffs will almost certainly seek emergency injunctive relief. Whether a TRO or preliminary injunction is issued before or after that date will determine whether the clause begins to appear in contracts while the litigation proceeds. We will be watching for a motion for emergency relief in the coming hours.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice regarding your situation, you should contact an attorney.