On April 23, 2025, the United States Department of Justice announced that it is rescinding the January 31, 2022 Notice of Report on Lawful Uses of Race or Sex in Federal Contracting Programs (the “2022 Report”). The April 23 announcement (the “Announcement”) does not clarify what practices or activities constitute inappropriate DEI programs.  Rather, the Announcement functions to remove the 2022 Report as a citable resource that litigants and federal agencies can rely upon in support of sex- and race-based considerations.

Background: the 2022 report

On January 31, 2022, the Justice Department issued a report of its review of substantial evidence – including research studies and evidence given at Congressional hearings – that demonstrated pervasive discriminatory barriers that “impede the full and fair participation of businesses owned by women and people of color in government contracting.” Of special significance to federal contractors, the 2022 Report found that a “substantial body of statistical evidence … [demonstrated] significant disparities in the amount of public contracting dollars going to businesses owned by women or people of color as compared to their availability for such contracts.” The 2022 Report (which is available here) found that the evidence supported the “compelling interest in the continued use of federal programs that contain remedial measures to eliminate discriminatory barriers to contracting opportunities for businesses owned by women and people of color.”

The April 23, 2025 Announcement

Effective as of April 23, 2025, the Justice Department has rescinded the 2022 Report.  According to the Announcement, which was issued on April 10 but not published until April 23, 2025, the 2022 Report “is no longer considered an accurate reflection of the current laws, executive orders, and federal court jurisprudence concerning the constitutionality of using race or sex in federal government programs.”  The Announcement also states that the rescission is consistent with Executive Order 14151 (“Ending Radical and Wasteful Government DEI Programs and Preferencing”) and Executive Order 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), which directed the immediate termination of unlawful “DEI” programs throughout the federal government, including in contracts with the federal government and contracts supported by federal grants.

The Announcement does not make any changes to existing federal law or regulations. However, the effect of the Announcement is to eliminate the 2022 Report as evidence that courts and governmental agencies can rely on to support eliminating discriminatory barriers in federal contracting. 

Hahn Loeser will continue to monitor this issue closely and provide updates as they become known. 

he year 2025 is shaping up to be quite the challenging year for the construction industry.  From the President’s executive order nos. 14151 and 14174 (signed January 20 and 21, 2025, respectively) seeking to end DEI-related programs in federal contracts (including construction), to the tariffs that have been instituted on construction materials such as steel, aluminum, and lumber, uncertainty abounds for 2025. 

This article will discuss how project participants can better understand, account for, and allocate the risks associated with delays or cost increases that may result from these types of government actions.

The Three Most Common Types of Delay Provisions Found in Construction Contracts

Delays or price escalations are nothing new to the construction industry.  Indeed, it is commonplace for construction contracts to address how the risk of delays and added costs are to be allocated among the parties, and how any claims stemming therefrom are to be raised and resolved among the contracting parties.  Generally speaking, there are three types of contractual provisions that address delays.  They are:  (1) excusable, compensable delays; (2) excusable, non-compensable delays; and (3) non-excusable delays.

Excusable, compensable delays are delays that are not caused by the contractor, entitling them to both an adjustment of the contract’s time to perform and price.  A classic example of an excusable, compensable delay is an owner-directed design change.  Excusable, non-compensable delays are delays that entitle the contractor to an extension of the contract’s time to perform, but no corresponding adjustment to the contract price.  These types of delays are often addressed in the contract’s force majeure clause and are often caused by factors outside the control of any of the contracting parties.  Oftentimes (but not always), government actions that disrupt or delay construction projects are categorized as an excusable, non-compensable delay.  Finally, non-excusable delays are delays caused by or within the control of the contractor.  Because such delays are within the contractor’s control, the contractor is not entitled to an adjustment of the time to perform or the contract price.

Strategies for Dealing with the Current Governmental and Economic Climate

One need only watch the news for a few minutes to understand the constant state of flux concerning enforcement of executive orders and tariffs.  Indeed, as recently as March 14, 2025, a federal appellate court granted the government’s request to stay a nationwide preliminary injunction that blocked enforcement of certain parts of executive order nos. 14151 and 14173 – representing yet another twist in the battle to enforce (or render void) these orders.  It is expected that this landscape will continue to change over the next several months, and that additional tariffs may be imposed (whether on additional materials or in differing amounts; as of the writing of this article, imported steel and aluminum are subject to a 25 percent tariff, with no exceptions for large trading partners like Mexico or Canada).

The best way to address this uncertainty is to make certain how such delays (and any corresponding cost increases)—should they occur—will be treated by the project participants.  In other words, the parties need to address these issues up front in their contract.  And above all else, one rule reigns supreme for crafting forward-looking contract clauses like delay and cost escalation provisions:  clarity is king.  If it is the project owner, and not the contractor, who will bear the increased costs of materials due to tariffs, then the contract needs to clearly place that risk on the owner (or vice versa).  The same is true for delays (recall that last time tariffs were implemented, supply chain issues ensued as well):  will the contract price be adjusted to account for the delays or just the time to perform?  Allocating these risks upfront, using clear and unambiguous language, will ensure that these issues are handled promptly and cost-effectively, which will in turn help to keep projects on schedule (or to minimize the impact of delays).  But the clarity does not begin and end with the contract – contractors and subcontractors should be clear in their bids and proposals what assumptions they rely upon (such as tariffs remaining constant at 25 percent) or what is excluded from their bid.  Again, doing this will ensure that all project participants are aware of and in agreement with how the risk of government-caused delays and cost increases are allocated.  In these uncertain times, clear risk allocation in contracts becomes that much more critical as it will help to reduce uncertainty.

The Federal Government’s recent imposition of tariffs appears designed largely to bring manufacturing back inside the United States. News reports indicate the Government understands that tariffs may initially cause pain but accepts that trade-off to press investment in future growth of U.S. manufacturing. As such, there may be increased opportunities for construction companies who build manufacturing facilities. Contracts for manufacturing require special planning and thinking. Key provisions needed to consider include:

• Confirming adequate funding exists to construct the facility. Often projects are started before all funding is in place. Funding for these projects is often a mix of manufacturer cash, lender funds, and government grants. In instances where projects are started before all funding is confirmed, projects can be broken into phases, with separate milestone dates triggered by funding confirmation on a phase-by-phase basis. This can reduce risk of non-payment to the contractor. However, for owners it risks new pricing with each phase, especially if there is a delay in obtaining financing.
  
• Construction projects involving federal grants are now subject to new requirements governing “DEI” programs under Executive Order 14173. Beginning on April 21, contractors on projects receiving federal funding must certify that they do not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws.”  Failure to meet this certification requirement could result in liability under the False Claims Act. The Government has not yet published formal guidance on what constitutes unlawful “DEI” programs. However, informal guidance from the U.S. Equal Employment Opportunity Commission (EEOC) suggests that an employment action may be considered unlawful if it is “motivated—in whole or in part—by race, sex, or another protected characteristic.” Under this informal guidance, as an example, an apprentice or mentoring program that takes into account race or sex would be considered unlawful. Contractors are advised to consult with legal counsel to assist in evaluating whether any of their hiring practices might violate current laws prohibiting unlawful DEI programs. Moreover, contract provisions may require contractors to adhere to these strict limits.

• Late completion of a project can sometimes expose contractors to liquidated damages. The amount of liquidated damages can account for costs the manufacturer may incur on additional financing interest, taxes, or even rent at an existing facility. But these liquidated damages should be proportional to the damage that the manufacturer might actually suffer.  As such, contractors should consider watching for manufacturer overreach on pricing the liquidated damages. The liquidated damages should not attempt to compensate the manufacturer for lost costs related to late start of manufacturing, lost sales, lost profits and the like. Contractors can insist on a fair liquidated damage amount as well as a waiver of consequential damages. After all, contractors are in the business of constructing buildings, and not the business of insuring against manufacturing losses.

• When a contractor serves in the design-build capacity, the contractor may press the owner to provide a clear and well-defined program for the contractor to design around. Time spent up front defining and explicitly writing up the owner’s program will enable the contractor to achieve clear requirements and reduces disputes later on. Unclear goals are hard to achieve and lead to unnecessary claims and litigation.

• Contracts should specify who carries risks associated with an uncertain and quickly-changing economic environment driven in part by political forces. Tariffs are currently being imposed and then removed or revised quickly, and it may take time for the markets to pressure the Government to make final decisions that manufacturers can rely on to make investment decisions. Because changes in the government’s policies and in the economic landscape will affect the cost, need, or future of a project, construction contracts should strongly consider addressing who carries the risk of those changes and their effects on the cost of a project. Contractors need to know they will be paid for the work, even if the project is suspended or no longer needed. Contractors also should not bear the risk of increased tariffs. Owners, conversely, will want the right to stop a project quickly should policies change that reduce the viability or need for the project.

Contract Details

When it comes to any contract, parties should consider how to negotiate and detail who owns the various risks and benefits. Clear contracts significantly reduce later disputes. Time spent up front is well invested to reduce the risk of disputes, extra costs, or other business issues.

On March 14, 2025, The U.S. Court of Appeals for the Fourth Circuit granted the government’s request to stay a nationwide preliminary injunction that blocked enforcement of elements of President Trump’s Executive Order 14173 (signed January 21, 2025) ending DEI programs within federal grant and contract processes, and his similar Executive Order 14151 (signed January 20, 2025) ending the federal government’s DEI initiatives, programs, and equity-related grants or contracts (collectively, the “Executive Orders”). 

The February 21, 2025 nationwide preliminary injunction, entered by Judge Abelson of the U.S. District Court for the District of Maryland, blocked enforcement of multiple provisions of the Executive Orders relating to DEI programs. The three-judge panel of the Fourth Circuit unanimously granted the government’s request to stay the preliminary injunction. The panel found that the government had demonstrated a likelihood of success on the merits of its appeal, thus satisfying the requirements for a stay of the injunction. The effect of the stay is that the government will be able to enforce the Executive Orders without restriction while the appeal of the preliminary injunction is pending. 

Specifically, federal agencies may now do the following:

• Require federal contractors and grantees to certify that they do not operate any programs “promoting DEI that violate any applicable Federal anti-discrimination laws” and that they are in compliance with applicable Federal anti-discrimination laws. Federal contractors and grantees also must acknowledge that compliance is “material to the government’s payment decisions,” thus triggering potential liability under the False Claims Act for violating the certification requirement. Note, however, that EO 14173 allowed federal contractors to continue operating under the prior regulatory scheme for 90 days from the date of the Order (i.e., until April 21, 2025). At this point, it is unclear what the new rules will be for entities that bid on federal or federally funded contracts.
  
• Develop a strategic enforcement plan, with the Attorney General’s assistance, to end illegal discrimination and preferences, including DEI, in the private sector. Agency strategic enforcement plans may lead to investigations of and enforcement actions against private sector organizations.
• Terminate all “equity related” grants or contracts within 60 days as directed in EO 14151.

WHAT IS NEXT?

Federal contractors should expect updates from the Office of Federal Contract Compliance Programs (OFCCP) regarding compliance with EO 14173 as the 90-day deadline approaches. The Fourth Circuit has ordered an expedited briefing schedule for the full appeal of the preliminary injunction, with the government’s opening brief due on April 8, 2025, and the Plaintiffs’ response brief due on May 8, 2025. The appeals process will likely take several months, and the Court is unlikely to issue an opinion before early summer 2025. In the meantime, federal contractors and grantees should be prepared to comply with direction from the OFCCP as it comes out. Hahn Loeser & Parks will continue to monitor this issue and provide updates as they become available.

Background

On January 21, 2025, President Trump signed Executive Order 14173 titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” (the “Order”). As was noted in our February 10, 2025, article, the Order amounted to an initial step by the Trump administration to end diversity, equity, and inclusion (“DEI”) as well as diversity, equity, inclusion, and accessibility (“DEIA”) in federal contracting.

In the aftermath of the Order being signed, government contractors and recipients of federal grants faced multiple questions, the most important of which was how the Order will affect the current contract grant allocation processes and what actions contractors and grant recipients must now take to follow this new regulatory framework. The answer, at the time, was not immediately clear.

Recent Developments

On February 3, 2025, a lawsuit was filed in the United States District Court of Maryland challenging the legality of the Order.  The lawsuit, filed by a group of plaintiffs led by the National Association of Diversity Officers in Higher Education (the “Plaintiffs”), challenged the Order as being unconstitutional in certain aspects. The Plaintiffs sought an injunction to prevent the Order from going into effect.

On February 21, 2025, Judge Adam Abelson partially granted the Plaintiffs’ request for a preliminary injunction for two reasons:

• First, Judge Abelson found that the Plaintiffs were likely to succeed on the merits of their claim that the Order is unconstitutionally vague in violation of the Fifth Amendment.  Specifically, the operative terms used in the Order including “DEI,” “equity-related,” “promoting DEI,” “illegal DEI,” “illegal DEI and DEIA policies,” and “illegal discrimination or preferences” were not sufficiently defined.  Without sufficient definitions of these essential terms, contractors and grant recipients were left to guess what types of “DEI programs or principles” the Trump administration considers “illegal” and is seeking to “deter.” Because of this, the Court found that the Order was too vague and that challenges to the Order were likely to succeed.
• Second, Judge Abelson found that the Plaintiffs were likely to succeed on the merits of their claim that the Order violates the First Amendment. A significant portion of his analysis rested on the certification provision of the Order that would require contractors and grant recipients to “certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” Judge Abelson observed that “the express language of the Certification Provision demands that federal contractors and grantees essentially certify that there is no ‘DEI’… in any aspect of their functioning, regardless of whether the DEI-related activities occur outside the scope of the federal funding.”

The effect of the breadth of this wording is that the prohibition on DEI could affect other parts of a contractor or grant recipients’ business that are entirely unrelated to the contract or grant award. For instance, if a contractor’s website states that it values diversity, equity, and inclusion in its business and hiring practices, even if those principles are not applied to bidding on a federal contract, that website statement could run afoul of the Order and the certification provision. And faced with the threat of potential perjury charges or prosecution under the False Claims Act, federal contractors and grant recipients have little choice but to apply an overinclusive definition of the ill-defined terms in order to avoid risking liability. Because the Order reaches beyond conduct associated with federal contracts and awards, and in fact could penalize contractors and grant recipients for actions that are entirely separate and unrelated from the contract and award, Judge Abelson found that the Order likely amounted to content discrimination in violation of the First Amendment and therefore the Plaintiffs were likely to succeed in their challenge of the Order.

Because Judge Abelson found that the constitutional challenges raised by Plaintiffs would also apply to all contractors and grantees, the scope of the injunction applies to anyone seeking a government contract or grant and not just the Plaintiffs in the case.

What is Next?

Judge Abelson’s injunction, although informative of the grounds on which the Order might ultimately be ruled unenforceable, does not automatically resolve the uncertainty faced by federal contractors. On March 4, 2025, the government sought to stay the injunction pending its appeal of the Court’s injunction. The outcome of the appeal may not be known for several months.  Additionally, the Trump administration may redraft the Order to provide more clarity to the undefined terms in an attempt to address the First Amendment and Fifth Amendment concerns identified by Judge Abelson. Ultimately, the Order may remain in place, whether in its current form or in a modified form.

What this means in the long run is that federal contractors and grant recipients will need to continue to be vigilant and monitor the changing legal framework to ensure they are compliant with any new changes that may develop. As new developments unfold, Hahn Loeser & Parks will continue to monitor this issue and provide further relevant updates as they become available.