As the construction industry pushes to diversify its workforce, new federal scrutiny is forcing contractors to tread carefully — and conduct thorough DEI audits to avoid costly missteps.

While construction firms have made visible progress in broadening opportunities and promoting inclusion, the legal climate in 2025 is shifting fast. President Donald Trump’s administration has issued executive orders targeting what it labels “illegal DEI” across federal agencies and contractors. That means builders working on federal jobs must now certify they aren’t using certain diversity programs — or risk penalties under the False Claims Act that could triple the value of a project.

“I’ve got to be honest with you,” said Jason Tremblay, partner and labor and employment practice vice chair at Saul Ewing’s Chicago office. “Anybody who says they know 100% what they’re talking about in this area, they don’t. You just don’t know what’s going to happen or how it’s going to evolve.”

Construction has tried for years to attract a broader labor pool. This fall marks the fifth Construction Inclusion Week, an industry initiative meant to highlight progress and encourage more diversity. But with the federal government now taking aim at affirmative action-style hiring practices, contractors face heightened compliance risks.

Andrew Turnbull, an attorney at Morrison Foerster in Washington, D.C., warns that mistakes can be costly. “Every time that you’re submitting a payment, there can be damages related there,” Turnbull said. “They have a big sledgehammer.”

The stakes are complicated by the patchwork of state laws that still uphold DEI requirements. “Some of these things are going to be red flag issues,” said Turnbull. “You’ve got a real risk here.”

To manage the minefield, attorneys say the first step is clear: conduct a DEI audit. Firms should take stock of their existing policies, identify areas that might conflict with federal mandates, and weigh how these measures affect their broader business strategy.

“The first thing you want to do is take a look at your book of business,” said Trent Cotney, partner and construction team leader at law firm Adams & Reese in Tampa. “Clearly if you’re a larger, national contractor or doing public work, federal work, there’s probably additional scrutiny there.”

What to Watch For

Under Trump’s orders, federal enforcement focuses on affirmative action-type efforts that use quotas or explicit targets based on race, gender or other protected traits.

“It’s programs that look for what’s known as workforce balancing,” Cotney said. “It’s taking criteria, typically race or sexual preference or any protected classes and looking to hire specifically to check boxes or make sure you’ve got more of those individuals, regardless of performance-based criteria.”

Educational or cultural observances — like celebrating Black History Month — are likely fine. But narrowly focused recruiting, such as only hiring from historically Black colleges, can be risky if not paired with broader outreach.

“The more that it is determined that you are only dedicating your recruitment efforts toward historically Black colleges, the more you’d be increasing your chances under this administration that you are implementing an unlawful, non-merit-based DEI program,” Tremblay said. A smart workaround? Pair programs at Howard University with similar outreach at Georgetown or other non-HBCUs to show balance, he said.

Don’t Forget Contracts

Another risk point is buried in contract language. Federal contractors and subcontractors should review standard agreements to make sure they aren’t unknowingly carrying forward now-prohibited provisions.

“Some primes will flow this down to their subs who just have kind of their form contracts,” Turnbull said. “They need to review those and make sure these things are all struck out.”

State-level requirements, though, still stand in some places. That can put contractors in a bind. “We get a lot of questions about, ‘I can’t do it in the federal context, but at the state level, there’s still an obligation,’” Turnbull said. “There’s not a clear answer on that, but technically, if your state contract requires it, that is still good law at this point in time.”

Cotney advises firms to push the responsibility back up the chain when possible. “If there’s anything questionable, I’d put in a statement that says the owner or whoever is providing me with this contract has determined that it is compliant with all federal rules and regulations,” Cotney said. “Shift the burden, to the extent possible, upstream.”

Choosing a Path

Once the audit is done — ideally under the guidance of legal counsel to preserve attorney-client privilege — contractors face choices. Some companies have eliminated any hint of affirmative action. Others stand firm.

“I have companies I represent who have welcomed this, and have scrapped any mention of any type of affirmative action,” Tremblay said. “I have others who have dug in their heels and said, ‘Absolutely not. We’re going to stay the course and keep our programs. If they come at us, we’ll deal with it.’”

Most firms, however, try to find a workable middle ground: they keep diversity programs that reduce legal exposure while continuing to attract new workers and retain talent. After all, pulling the plug on DEI entirely could backfire internally.

“The one message I want to send is don’t abandon your diversity policies just because of this focus on illegal DEI,” Cotney said. “You should still have a good anti-harassment policy and encourage diversity. It brings a significant amount to the table both internally, and in changing your overall viewpoint. Diversity is a great thing.”

Originally reported by Joe Bousquin in Construction Dive.