As the saying goes, “To be forewarned is to be forearmed.” American companies doing business with the federal government have once again been forewarned about the risks of engaging in DEI practices. To ignore these warnings can be very costly for the company, its shareholders, and employees.
Just four months ago, IBM paid more than $17 million to resolve allegations that it maintained illegal diversity, equity, and inclusion practices while performing federal contract work. That settlement was the first resolution under the Justice Department’s Civil Rights Fraud Initiative. It was also a clear warning. Last week, President Donald Trump’s DOJ announced that another top federal contractor has agreed to pay $21.5 million to settle similar allegations.
The Justice Department alleged that Deloitte violated the False Claims Act by certifying compliance with federal nondiscrimination rules while applying race and sex preferences in hiring, promotions, and staffing. Business units tracked “demographic goals” with color-coded scorecards, and roughly 150 of the firm’s most senior leaders were evaluated, and in some cases compensated, based in part on progress toward those targets.
The government further alleged that promotion classes for partners were assigned racial and sex targets, that staffing for federal contracts was managed with a priority toward demographic parity among employees “on the bench,” and that certain training, mentoring, and leadership programs were limited by race or sex. Deloitte denies discriminatory conduct and admitted no liability. Yet the settlement (and the facts) speak volumes.
U.S. Attorney General Todd Blanche made it clear: “Government contractors cannot reward or penalize employees based on race or sex — and labeling the practice DEI does not make it lawful.” Associate Attorney General Stanley E. Woodward, Jr. added that merit, not sex or race, must drive opportunity and promotion.
In April, I wrote that IBM’s DEI settlement was a wake-up call for every company on the government’s top-contractor list. If contractors were hoping that case was simply an isolated event or believed that simply scrubbing public-facing DEI language on the company website would be enough, Deloitte’s settlement should end that illusion. The DOJ is not hunting slogans. It isn’t simply asking if your employees are required to include their pronouns in their emails. It is going under the hood. Examining companies’ inner workings. Investigating the real policies in place. Hidden demographic composition goals, compensation incentives, restricted employee programs, and race or sex focused staffing plans are all being brought to light.
These contradict the certifications contractors sign to obtain taxpayer-funded projects, and the administration is making it clear it will not turn a blind eye toward discriminatory practices.
1792 Exchange’s Federal Contractor Database tracks those public commitments, supplier diversity mandates, hiring goals, bonus structures, and training programs for the top 100 federal contractors. The picture remains sobering.
Thirty-two of the top 100 federal contractors are listed as red, or high risk, based on our review of publicly available data. These 32 companies, including Lockheed Martin, RTX, Boeing, Northrop Grumman, and others, have received $239,128,473,433 in taxpayer funding. That’s more than half of the more than $424 billion obligated to the entire top 100 list. Those red-listed contractors are companies whose publicly documented policies appear even more concerning following two very large government settlements for similar behaviors.
The good news is that some contractors have already made some changes. A few have dropped the most conspicuous diversity councils, trainings, or scorecard affiliations. We applaud that progress. But it is not genuine nor complete compliance. As we noted after IBM, partial or merely surface-level reforms fail to address the real behaviors, leaving the dangerous parts intact. Applying new labels is not the same as correcting illegal behaviors. Practices such as demographic targets tied to pay, “diverse slate” rules, sourcing based on race or sex, and leadership pipelines closed to employees of the wrong identity, are all steps that convert a civil-rights certification into a False Claims Act problem.
American taxpayers have a right to expect that the companies collecting hundreds of billions of their tax dollars year after year will honor the law and treat all employees fairly and honestly — not simply under one administration, but always. Merit, competence, and equal opportunity are not optional considerations. They are legal requirements. When a contractor substitutes demographic engineering for those requirements, it does more than invite a multimillion-dollar settlement. It broadcasts to the public that federal procurement can be gamed by ideology so long as the invoices keep coming.
U.S. taxpayers also have the right to expect that goods and services purchased by the federal government will be produced and delivered by the most capable and competent people, and you only achieve that by focusing on merit and technical qualifications, not by simply filling out a bingo card of diverse demographics.
The enforcement pattern is now clear. The Civil Rights Fraud Initiative was not a one-off press release. IBM was first. Now Deloitte. Contractors unwilling to conduct serious self-reflection and, more importantly, enact substantive changes toward enduring neutrality have no one to blame but themselves if the DOJ comes calling.
The remedy is not complicated, and it is not partisan. Review every employment, promotion, compensation, staffing, mentoring, and supplier program, comparing those with the nondiscrimination certifications already sitting in the contract file. End race- and sex-based eligibility rules. Ensure bonuses are not tied to demographic scorecards. Stop tracking employees with color-coded goal sheets. Replace restricted growth pipelines with open, merit-based development. Document the change. Then live it.
Our database exists to help companies see where they stand, before the Trump Justice Department does. Our record is built on public facts. Companies can change those facts by updating their policies and making sure they align with all legal requirements.
I THOUGHT BIKE LANES WERE ‘DEI.’ THEN AN SUV KILLED MY FATHER
But companies that opt to dismiss the Deloitte example, or IBM before it, as someone else’s problem, should not be surprised when the next settlement announcement includes their name.
You have been forewarned. Now be forearmed.
Douglas H. Napier is executive chairman and CEO of 1792 Exchange, a nonprofit group that helps companies get back to business through data, research, and confidential engagement with boards and executives.