California Governor Newsom Issues Executive Order Expanding AI Oversight Through State Procurement

California Governor Gavin Newsom signed Executive Order N-5-26 directing state agencies to develop AI procurement standards requiring vendor certification, disclosure, and risk management controls addressing algorithmic bias, harmful content, and civil rights impacts. The order authorizes California to make independent supply chain risk assessments that may differ from federal determinations, potentially including vendors like Anthropic that the federal government labeled a supply chain risk. This creates a collision course with the Trump administration's Executive Order 14365, published December 11, 2025, which directs the Justice Department to challenge state AI laws and threatens to withhold Broadband Equity Access and Deployment Program funding from states with restrictive regulations. The divergence between California's focus on bias and civil rights protections and federal requirements for 'Unbiased AI Principles' under Executive Order 14319 creates conflicting compliance obligations for companies operating in both markets, similar to recent conflicts over DEI and affirmative action requirements in government contracting.

California's Executive Order N-5-26 and Procurement-Based AI Regulation

• ▪Executive Order N-5-26 requires enhanced certification, disclosure, and risk management expectations to be embedded in California public contracting requirements for AI companies
• ▪California Governor Gavin Newsom issued Executive Order N-5-26 directing state agencies to develop new standards governing the procurement and use of artificial intelligence
• ▪Executive Order N-5-26 authorizes California agencies to assess federal determinations regarding restricted or high-risk vendors and in some circumstances proceed with procurement notwithstanding federal restrictions
• ▪Executive Order N-5-26 contemplates the potential use of watermarking for synthetic content within California state government

Potential Conflict Between State and Federal AI Oversight Authority

• ▪The Biden administration published OMB Memo M-25-22 on April 3, 2025, which detailed requirements for AI procurement by federal agencies
• ▪President Trump published Executive Order 13960, Promoting the Use of Trustworthy Artificial Intelligence in the Federal Government, on December 3, 2020, outlining the initial framework for AI procurement by federal government agencies
• ▪OMB Memo M-26-04, Increasing Public Trust in Artificial Intelligence Through Unbiased AI Principles, was published on December 11, 2025, describing specific requirements for large language models to meet Unbiased AI Principles requirements
• ▪California's Executive Order N-5-26 supply chain policy could be subject to constitutional challenges on the basis of preemption, especially if California makes a different supply chain determination for a contract involving federal funds
• ▪Executive Order 14365 and OMB Memo M-26-04 were both published on December 11, 2025
• ▪Executive Order 14365, Ensuring a National Policy Framework for Artificial Intelligence, was published on December 11, 2025
• ▪Executive Order 14365 directed the Department of Justice to challenge state AI laws deemed onerous
• ▪Executive Order 14319, Preventing "Woke AI" in the Federal Government, mandated that federal agencies only procure large language models that follow Unbiased AI Principles
• ▪The federal government labeled Anthropic a supply chain risk, which remains subject to ongoing litigation
• ▪Executive Order 14365 threatened to withhold federal Broadband Equity Access and Deployment Program funding from states with restrictive AI regulations

Compliance Implications for Government Contractors Operating Across Jurisdictions

• ▪Since early 2025, federal contractors have grappled with how to reconcile different requirements related to employment, as the federal government has prohibited affirmative action and DEI-related practices while certain states have continued to require them in their contracts

Perspective of California state government

• ▪California's Executive Order N-5-26 aims to embed protections against algorithmic bias and civil rights violations into state AI procurement

Perspective of AI vendors and technology companies

• ▪Technology companies operating in both California and federal markets may face conflicting AI procurement obligations that increase compliance costs and complexity
• ▪AI companies may need to implement watermarking capabilities for synthetic content to qualify for California state contracts

Perspective of Federal government under Trump administration

• ▪The Trump administration threatens to withhold Broadband Equity Access and Deployment Program funding from states with restrictive AI regulations

Perspective of Constitutional law experts and legal analysts

• ▪California's Executive Order N-5-26 supply chain policy faces potential constitutional preemption challenges when California makes different vendor risk determinations than the federal government