In early 2025, federal contractors were hit with sweeping regulatory changes that mark a significant shift in how the government approaches affirmative action, diversity mandates, and labor standards. These developments stem from Executive Order 14173, signed in January, which reverses decades of policy under previous administrations.

What Changed?

One of the most impactful shifts is the rollback of affirmative action requirements that have long applied to federal contractors. Executive Order 14173 repeals key provisions of Executive Order 11246, which mandated nondiscrimination in employment practices based on race, gender identity, and sexual orientation. In practice, this means contractors are no longer required to include clauses like the “Prohibition of Segregated Facilities” (FAR 52.222-21) in their contracts.

Federal agencies—including the General Services Administration (GSA) and Department of Defense (DoD)—have already begun updating their contracts and compliance procedures. At the same time, enforcement responsibilities are being centralized under the Department of Labor’s Office of the Assistant Secretary for Policy, diminishing the role of the Office of Federal Contract Compliance Programs (OFCCP).

DEI Programs Under Scrutiny

In addition to eliminating affirmative action mandates, the executive order calls for the removal of existing Diversity, Equity, Inclusion, and Accessibility (DEIA) initiatives that may be interpreted as discriminatory or noncompliant with federal law. This has put pressure on federal contractors to reexamine their internal DEI policies and training programs. Major companies, including Google, are already adjusting their practices to align with the new federal guidelines.

Wage Reductions for Federal Contract Workers

Another controversial change involves federal contractor wages. The administration has rolled back the federal minimum wage for contract workers from $17.75 per hour, which was implemented under a 2021 order, back to pre-2021 levels. This affects a wide range of employees, from janitorial staff to food service workers, many of whom were guaranteed higher wages in recent years.

What Contractors Should Do Now

With so much in flux, it’s critical for contractors to:

• Review existing contracts and prepare for updated language and clauses.

• Audit current DEI policies and consult legal counsel to ensure compliance with the new rules.

• Reevaluate compensation structures for federally contracted employees.

• Stay informed about upcoming guidance from the Department of Labor and contracting agencies.

These changes represent a seismic policy shift that could reshape the federal contracting landscape for years to come. Whether you agree with the direction or not, adapting early and staying compliant will be key to maintaining eligibility and good standing in federal procurement.