On April 20, 2026, the Federal Acquisition Regulatory (FAR) Council issued agency implementation guidance for Executive Order (E.O.) 14398, “Addressing DEI Discrimination by Federal Contractors,” which President Trump signed on March 26, 2026. The guidance introduces a new contract clause — FAR 52.222-90 — and establishes tight deadlines for agencies to incorporate the clause into new and existing contracts. Federal contractors, subcontractors, and their compliance teams should take immediate steps to understand the scope of the new requirements and prepare for implementation. Contractors should take note that the implementation of this new clause may be affected by a suit filed in Maryland federal court seeking to block the executive order.
This alert summarizes the key provisions of E.O. 14398, the FAR Council’s implementing guidance, and the practical steps contractors should consider in response.
McGuireWoods is closely tracking this issue. Click here for a more fulsome alert on E.O. 14398 published on April 2, 2026.
Link to I. Background I. Background
E.O. 14398 builds on the Administration’s prior actions targeting diversity, equity, and inclusion (DEI) programs in the federal contracting context, including E.O. 14173 (“Ending Illegal Discrimination and Restoring Merit-Based Opportunity”), signed on January 21, 2025. While E.O. 14173 required contractors to certify that they do not operate programs promoting DEI that violate federal anti-discrimination laws, E.O. 14398 goes further by introducing specific mandatory contract language and defining the scope of prohibited conduct.
The stated policy rationale for E.O. 14398 is that “racially discriminatory DEI activities” impose “artificial costs in hiring, promotion, and operations,” create “excessive workforce turnover,” reduce the available labor pool, and generate inefficiencies that are passed on to the federal government through contractor pricing. The order was issued pursuant to the Federal Property and Administrative Services Act (FPASA) and published in the Federal Register at 91 FR 16147 on March 31, 2026.
Link to II. Legal Challenges II. Legal Challenges
A coalition of nonprofits, university professors, federal contractors and subcontractors have filed litigation seeking to block E.O. 14398. The case is National Association of Diversity Officers in Higher Education et al. v. Trump, case number 8:26-cv-01532, in the U.S. District Court for the District of Maryland.
Link to III. Key Definitions III. Key Definitions
E.O. 14398 introduces two key definitions that frame the scope of the new requirements:
“Racially discriminatory DEI activities” is defined as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” Notably, this definition is limited to race- and ethnicity-based disparate treatment; it does not expressly cover other protected characteristics such as gender, sex, or religion, and it does not reach disparate-impact theories of discrimination.
“Program participation” is defined broadly to include “membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.”
Link to IV. The Mandatory Contract Clause: FAR 52.222-90 IV. The Mandatory Contract Clause: FAR 52.222-90
The FAR Council’s guidance implements the E.O.’s requirements through a new clause at FAR 52.222-90, “Addressing DEI Discrimination by Federal Contractors,” which is substantively the same as to the clause specifically proscribed under the E.O. (with minor changed in verbiage). The clause requires contractors to agree, in connection with the performance of work under a covered contract, to the following six obligations:
- The contractor will not engage in any racially discriminatory DEI activities.
- The contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting officer, for purposes of ascertaining compliance with the clause.
- In the event of the contractor’s or a subcontractor’s noncompliance with the clause, the contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further government contracts.
- The contractor will report any subcontractor’s known or reasonably knowable conduct that may violate the clause to the contracting officer and take any appropriate remedial actions directed by the contracting officer.
- The contractor will inform the contracting officer if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of the clause.
- The contractor recognizes that compliance with the requirements of the clause is material to the government’s payment decisions for purposes of 31 U.S.C. § 3729(b)(4) (the False Claims Act or FCA).
The clause applies to solicitations and contracts — including those for commercial products and commercial services — for which the place of delivery or performance is in the United States. Consistent with the direction under the E.O., the clause also requires flow down to subcontractors at all tiers, including contractors’ subcontracts and subcontractors’ lower-tier subcontracts and subcontracts for commercial products and services for which the place of delivery or performance is in the United States.
Link to V. Implementation Timeline and Agency Requirements V. Implementation Timeline and Agency Requirements
The FAR Council’s guidance establishes three mandatory implementation steps and corresponding deadlines for agencies:
- Beginning April 24, 2026: Agencies shall begin using the new clause at FAR 52.222-90 in all new solicitations and resulting contracts.
- By April 27, 2026: Agencies shall update their Revolutionary Federal Acquisition Regulation Overhaul (RFO) class deviations for FAR Parts 9, 12, 22, and 52.
- By July 24, 2026: Agencies shall modify existing contracts to incorporate the new clause.
Agencies that adopt the FAR Council’s model deviation text without change are not required to coordinate with the Council; however, agencies that wish to adopt FAR text differing from the model deviation must request approval from the Council before doing so, unless they have existing statutory direction that requires reconciliation with the guidance.
Further, while the guidance implies (if not confirms) that the modification of current contracts should be bilaterial in nature, it also specifically provides that, “[i]f a contractor refuses to agree to a bilateral modification, the contracting officer should consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience,” meaning that a contractor’s failure to adopt the clause could result in contract termination.
Link to VI. Enforcement Mechanisms VI. Enforcement Mechanisms
E.O. 14398 and the FAR Council’s guidance contemplate several enforcement avenues, making this one of the more consequential compliance developments for federal contractors in recent years.
- Contract Remedies. The E.O. directs contracting agencies to cancel, terminate, or suspend contracts — in whole or in part — for failure to comply with the clause. As noted, this FAR Council guidance further directs agencies to consider the termination of contracts under which the contractor refuses to execute a bilateral modification to implement the clause.
- Suspension and Debarment. The FAR Council’s guidance adds failure to comply with FAR 52.222-90 as a cause for both debarment (under FAR 9.406-2) and suspension (under FAR 9.407-2). This means that noncompliance could result in a contractor being excluded from future government contracting opportunities.
- FCA Exposure. The clause expressly also seeks to link compliance with the clause to the government’s payment decisions under the FCA, creating a potential basis for FCA enforcement. The E.O. directs the Attorney General to consider bringing FCA actions against contractors or subcontractors that violate the clause, and to ensure prompt review of qui tam actions — including rendering a decision on intervention within the 60-day statutory period to the maximum extent practicable.
- Sector-Specific Scrutiny. The E.O. directs the OMB Director, in coordination with the Attorney General, the Assistant to the President for Domestic Policy, and the Chairman of the EEOC, to identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI activities and to issue additional guidance to contracting agencies regarding compliance within those sectors. We understand that such review is ongoing.
- Agency Reporting and Annual Reviews. Under Section 4(c) of the E.O., each agency head must review its implementation and report to the Assistant to the President for Domestic Policy by July 24, 2026 (120 days after the order’s issuance). Reports must identify the date the agency’s deviation was issued, whether it included language other than the FAR Council’s model deviation, and whether the agency’s applicability approach includes any variances from the Council’s guidance. Agencies must also conduct annual reviews of their compliance and implement corrective measures as needed.
- Paperwork Reduction Act Clearance. The FAR Council’s guidance notes that OMB’s Office of Information and Regulatory Affairs (OIRA) will process a Paperwork Reduction Act clearance for information collections related to FAR 52.222-90. Once OIRA approves the information collection, agencies will be expected to enforce full compliance with reporting and recordkeeping requirements. Until that time, agencies may still enforce the requirement for contractors to submit existing records regarding compliance in connection with individual investigations.
Link to VII. Practical Implications for Federal Contractors VII. Practical Implications for Federal Contractors
Scope of Prohibited Conduct. Although the E.O. provides more specificity than its predecessors, the definition of “racially discriminatory DEI activities” remains broad and, potentially, open for discussion. The phrase “allocation or deployment of an entity’s resources” encompasses a wide range of activities, including sponsored events, speaker programs, employee resource groups, and philanthropic initiatives. Contractors should evaluate which programs may fall within the scope of the prohibition and potential steps to take in connection with these requirements.
Subcontractor Oversight Obligations. The clause, in conjunction with the EO., may suggest that prime contractors should more closely supervise and affirmatively monitor subcontractor compliance with the clause more broadly than contemplated under standard government contracting principles. While the clause remains subject to Office of Management and Budget review under the Paperwork Reduction Act, Contractors may wish to review subcontracting templates, flow-down provisions, and subcontractor compliance monitoring procedures accordingly, particularly given the short timeline for implementation under the FAR Council guidance.
FCA Liability. The express materiality provision in the clause — stating that compliance is material to the government’s payment decisions — is designed to facilitate FCA enforcement. Combined with the Administration’s directive to the Attorney General to pursue FCA actions and promptly review qui tam suits, contractors face heightened risk to both government-initiated and whistleblower-driven enforcement (regardless of the veracity of such claims). To that end, we note that DOJ announced a private sector DEI-related FCA settlement last week.
Relationship to E.O. 14173. E.O. 14398 does not replace or supersede E.O. 14173, although we do note that the FAR Council has withdrawn a draft interim final rule implementing the terms of E.O. 14173.
Small Business Subcontracting Plans. The FAR Council guidance and clause do not alter federal contractors’ requirements with respect to small business subcontracting plans.
Link to VIII. Recommended Action Items VIII. Recommended Action Items
In light of the FAR Council’s guidance and the compressed implementation timeline, contractors would be well served to consider, among other things, the following steps:
Continued comprehensive review of internal DEI programs. Evaluate all recruitment, hiring, promotion, contracting, mentoring, training, and resource-allocation practices for any elements that could be characterized as disparate treatment based on race or ethnicity. Programs that are facially race-neutral and grounded in legitimate business justifications are less likely to implicate the clause. We note that, while many contractors evaluated these activities in connection with the issuance of E.O. 14173, the issuance of the new E.O. confirms the Administration’s intent to review and, where appropriate, enforce these requirements on a going forward basis. Given this risk, ongoing and continued review of such considerations may be warranted.
Update subcontracting and flow-down procedures. Because the clause must be flowed down to subcontractors of all tiers, contractors should revise their subcontract templates and compliance provisions to incorporate the FAR 52.222-90 requirements. Contractors should also (1) establish mechanisms for updating preexisting subcontracts, and (2) discuss with counsel the possibility of monitoring and reporting of subcontractor conduct under the clause. Contractors may also want to review small business subcontracting plans and related activities to ensure compliance with the requirements of both regimes.
Prepare for records access and reporting obligations. Given the clause’s access requirements, contractors may want to consider organizing relevant records, establishing or update retention policies, and considering which materials may be subject to attorney-client privilege or work-product protections. The clause requires contractors to furnish all information and reports and to provide access to books, records, and accounts upon request by the contracting officer.
Carefully review certifications. As agencies implement the E.O. with varying specificity during the transition period, contractors should ensure that any certifications they provide to either the government and prime contractors both (1) have been properly reviewed and audited for accuracy, and (2) are consistent with the language required by specific contract modifications.
Document business justifications. To the extent that workforce programs are designed to improve operational effectiveness, expand talent pipelines, or address demonstrated business needs, those justifications should be thoroughly reviewed and documented as part of an overall compliance strategy.
Monitor agency-specific implementation. Because agencies may implement the guidance with slight variations, contractors should track FAR Council actions, OMB guidance, agency-specific class deviations, specific contract modification requests, and relevant case law developments.
Assess FCA exposure risk. Contractors should evaluate their FCA risk posture in light of the clear focus on enforcement thereunder. While the FCA requires knowledge of falsity and materiality and contractors who make good-faith certifications based on reasonable interpretations of the clause have defenses available, the FAR Council guidance and terms of the clause suggest an active enforcement environment and whistleblower risk.
Link to IX. Looking Ahead IX. Looking Ahead
The FAR Council’s guidance represents a significant step in translating E.O. 14398’s policy objectives into binding contractual requirements. With the first class deviations expected imminently and agencies required to modify existing contracts by July 24, 2026, contractors face a short timeline to ensure compliance both themselves and as to their subcontractors and supply chain. Contractors should also anticipate that the FAR Council will pursue a formal rulemaking to permanently incorporate the clause into the FAR, consistent with the E.O.’s directive.
The evolving legal and regulatory landscape surrounding DEI in federal contracting continues to present significant legal risk and challenges.
For questions about this executive order and its implications for federal contracting, DEI programs, and False Claims Act compliance, contact the authors or members of the firm’s False Claims Act, Government Contracts, Higher Education Enforcement & Regulatory Counseling Practice Group or Labor and Employment teams.