Implications of Executive Order 14173 on Government Construction Contracts

by Kylie Brooks

April 1, 2025

On January 24, 2024, President Trump signed Executive Order 14173, “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” directing all federal agencies to “terminate all discriminatory and illegal preferences, mandates, policies, programs, activities, guidance, regulations, enforcement actions, consent orders, and requirements” and “enforce our longstanding civil-rights laws and to combat illegal private-sector [diversity, equity, and inclusion] DEI preferences, mandates, policies, programs, and activities.”

Executive Order 14173 Generally.

This Executive Order significantly deviates from longstanding affirmative action and diversity initiatives, which have been in place for decades, and have significant implications for contractors, particularly those who perform federal work. Among other things, this Executive Order:

Revokes numerous previous executive orders, including President Lyndon B. Johnson’s Executive Order 11246 of September 24, 1965 (Equal Employment Opportunity);
Requires the Office of Federal Contract Compliance Programs within the Department of Labor to immediately cease, among other things, “allowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin;” and
Prohibits the employment, procurement, and contracting practices of Federal contractors and subcontractors from being considered based on race, color, sex, sexual preference, religion, or national origin in ways that violate the Nation’s civil rights laws.

In sum, the Executive Order terminates DEI discrimination in the federal workforce, and federal contracting and spending. The Trump administration’s goal, according to the White House Fact Sheet published on January 22, 2025, is to require “[F]ederal hiring, promotions, and performance reviews to reward individual initiative, skills, performance, and hard work and not, under any circumstances, DEI-related factors, goals, policies, mandates, or requirements.”

Additionally, the Executive Order requires each agency to include in every contract or grant a term requiring contractors to agree that compliance with all applicable federal anti-discrimination laws is “material” to the government’s payment decisions and to certify that they do not operate any programs promoting DEI that violate federal anti-discrimination laws. Essentially, contractors receiving federal funding are required to agree that they will not engage in illegal discrimination, including the now illegal DEI initiatives.

Unchanged Anti-Discrimination Laws.

Despite these sweeping changes, federal contractors must retain compliance with existing anti-discrimination laws, such as:

Title VII of the Civil Rights Act,
the Equal Pay Act,
the Age Discrimination in Employment Ac,
the Americans with Disabilities Act,
Section 503 of the Rehabilitation Act, and
the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA).

These statutes continue to require affirmative action and non-discriminatory practices.

Federal Funding Implications.

Consistent with this Executive Order, on January 27, 2025, the Office of Management and Budget (OMB) published Memorandum M-25-13: “Temporary Pause of Agency Grant, Loan, and other Financial Assistance Programs,” directing Federal agencies to “identify and review all Federal financial assistance programs and supporting activities consistent with the President’s policies and requirements” and “temporarily pause and potentially cancel federally funded programs that conflict with the administration’s priorities.” Although Memorandum M-25-13 was quickly rescinded by Memorandum M-25-14 after a federal court in the District of Columbia issued a temporary restraining order, the Trump administration continues to indicate that it intends to freeze federal funds for certain programs for being inconsistent with the Executive Order’s objectives related to DEI.

Status of State and Local Government.

Local governments that receive federal funding for a variety of activities are likely to face obstacles as a consequence of the recent and developing actions of the Trump administration. Following the Trump administration’s lead, Texas lawmakers have introduced legislation that seeks to prohibit state and local government contracts from applying DEI principles. Currently, Texas House Bill 167, titled “The Ending Institutional Racism Act,” seeks to prohibit certain diversity, equity, and inclusion (DEI) initiatives by governmental entities in Texas by introducing Chapter 621 to the Government Code and amend existing laws regarding governmental contracting —including, without limitation, Chapter 2252.911 of the Texas Government Code—prohibiting contracts based on race, color, ethnicity, sex, gender identity, or sexual orientation. If House Bill 167 is signed into law, state and local government contracts would be prohibited from being awarded to any contractor bids based on race, color, ethnicity, sex, gender identity, or sexual orientation.

Conclusion.

While political activity is still evolving and the future remains uncertain, government funded projects are likely to face significant challenges awarding projects based on affirmative action and diversity principles. Contractors should be aware of rule changes and how they affect qualifications, bidding, and the contract process.

To discuss how the Executive Order could impact your business, contact Kylie Brooks at Griffith Davison’s Dallas office at (972) 392-8900, or email Kylie directly at kbrooks@griffithdavison.com.

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Three Key Contract Terms in a Volatile Market

by J.P. Neyland

September 14, 2022

Since March 2020, the construction industry has seen unprecedented volatility in its material and labor markets. The costs of key materials have risen substantially over pre-pandemic levels, and supply-chain delays have made it considerably more difficult to estimate lead times. In some cases, costs have more than doubled in just two years. And though these costs have been felt throughout the industry, they have proven costliest to those parties who failed to address them ahead of time—by contract.

Owners and contractors alike have grown increasingly concerned about the construction industry’s volatile material and labor markets and are looking to address these issues upfront. Prices for necessary materials and labor continue to fluctuate, disrupting the bidding process and making it harder to negotiate and execute contracts—particularly those with a stipulated sum or a guaranteed maximum price. And on top of inflation, supply chain issues have created substantial uncertainty: it’s hard for anyone to say whether labor and materials will be available months or years down the line, much less how much they will cost.

Under these conditions, it’s important for both owners and contractors to pay special attention to the contracting phase of any new project. It is not enough to rely on standard-form contracts, most of which do not sufficiently address the price fluctuations and unavoidable delays that plague today’s construction industry. Fortunately, good legal counsel can provide significant protection from market fluctuations and supply-chain issues. The following three drafting techniques are particularly well suited to addressing these risks in the current environment.

Express Provisions:

The most conspicuous way to address volatility is to expressly state whether the contractor is entitled to an increase in the contract sum or contract time as a result of price escalations or delays in obtaining labor and materials. Of course, given the risks they pose to all parties, these express provisions are often the subject of intense—and sometimes acrimonious—negotiation. Fortunately, there are a number of ways a carefully drafted contract can regulate these issues to all parties’ satisfaction, including:

limits on the total increase in price and time for performance;
limits on the percentage increase in cost of materials;
caps on the total amount of increase in the contract sum or contract time;
duties to mitigate;
notice obligations; and
a threshold of change in cost or time that must be met before an adjustment to the contract sum or contract time is permitted.

The best way to address these issues in the contract will vary according to the structure of the project. But by discussing their concerns openly and collaborating on a solution, parties can typically agree on a method to limit their exposure.

Exceptions:

Another way to address volatility is to include specific exceptions related to market fluctuations and supply chain issues. As mentioned above, standard industry forms commonly charge the contractor with responsibility for all costs of materials, labor, and equipment. But contractors can avoid excessive exposure by adding language that “carves out” increases in the cost of materials or delays in contract performance caused by market fluctuations and conditions, governmental actions, supply chain issues, or other causes beyond the parties’ control. These “carve-outs” exclude such costs from the contractor’s responsibility and, when triggered, credit the contractor for the additional costs of price hikes and delays.

Allowances:

Finally, parties can use contractual allowances to mitigate fluctuations in the price and availability of supplies. In general, a construction allowance is an estimated amount included in an initial contract sum as a placeholder until the exact pricing of the material or labor is known. If the actual cost of the material or labor exceeds the allowance, the contract requires the parties to execute a change order to increase the contract sum by the amount of the excess cost.

As with the express provisions discussed above, the potential exposure from an allowance can easily exceed seven figures when there’s a sudden increase in the price of a material, such as lumber. Parties must also consider the potential for triggering liquidated damages provisions due to delays that are largely outside their control. It is therefore essential for both owners and contractors to consult experienced attorneys who can thoroughly review and negotiate their contracts with an eye toward minimizing the risks of the current market.

The construction-law specialists at Griffith Davison have extensive experience negotiating contracts in all sectors of the industry and can help you navigate this volatile market. To discuss these issues in more detail or to have a legal professional analyze or draft necessary contractual terms, please consult with one of our attorneys at (972) 392-8900.

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