Part II: Practical Compliance Roadmap And Strategic Outlook

To remain compliant and competitive under EO 14173, federal contractors should take immediate steps to realign their policies, data practices, and contracting procedures with the new merit-based framework.

The first step is to map your organization's federal exposure. Identify all contracts, subcontracts, and grants, both prime and sub, with federal agencies, including any flow-down obligations. This inventory clarifies where compliance responsibilities apply. Then determine whether your organization previously operated under EO 11246's affirmative-action structure and assess what has been done to wind down legacy programs such as Affirmative Action Plans or placement goals that may no longer be legally defensible.

As you review your active and upcoming contracts, look for new EO 14173 clauses, particularly those requiring certification of nondiscrimination compliance or tying such compliance to payment eligibility under the FCA. Conduct a risk-tiering analysis, giving priority to large or complex contracts, industries with past enforcement attention, and relationships involving multiple subcontractors. Eschbach emphasized that organizations with “especially robust” affirmative-action or DEI programs will require more deliberate wind-down planning to avoid residual liability.

Contractors should also update their contract and certification language to reflect EO 14173's requirements. Each contract or grant should include provisions confirming compliance with all federal nondiscrimination laws, affirming that such compliance is material to payment, and certifying that no DEI programs violate legal standards. Because certain provisions are under litigation, legal counsel or compliance officer should review all certifications before submission to ensure accuracy and mitigate FCA risk. Sub-recipient and subcontracting agreements must likewise be reviewed to ensure the appropriate flow-down of obligations and internal policy alignment.

Equally important is maintaining a strong focus on nondiscrimination and outreach obligations that remain intact, especially under Section 503 and VEVRAA. Contractors should continue proactive outreach to individuals with disabilities and protected veterans, documenting outreach efforts, accommodation procedures, and measurable benchmarks for participation. Establishing internal or self-audit mechanisms can also prepare organizations for potential OFCCP audit reforms aimed at encouraging voluntary compliance.

Organizations should then examine how they collect and safeguard demographic data. While collecting data remains lawful, Eschbach cautioned that it must be used solely to verify nondiscriminatory practices not to drive decisions or set demographic goals. Limit access to HR and compliance personnel, maintain detailed audit trails, and ensure data control systems meet privacy and security standards.

Finally, success under EO 14173 depends on training, culture, and advisory renewal. HR professionals, hiring managers, and compliance officers should receive updated training that clarifies the boundaries of lawful DEI activity, emphasizes nondiscrimination, and explains potential FCA liability. Contractors are encouraged to engage compliance-focused advisers with current expertise.

From a strategic standpoint, Eschbach's message carries broader implications. Organizations must align DEI and workforce initiatives with clear business rationales rather than regulatory mandates. Those that modernize early building transparent, merit-based systems with thorough documentation will gain a competitive and reputational advantage. Conversely, contractors that cling to outdated affirmative-action structures or preferential DEI programs risk noncompliance, False Claims Act exposure, and scrutiny from multiple enforcement agencies.

In essence, EO 14173 marks the dawn of a new compliance era, one in which data integrity, nondiscrimination, and demonstrable meritocracy define both legal compliance and leadership credibility in the federal contracting space.

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.