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As discussed in our earlier GT Alert, EO 14398 directs agencies to include a new clause in contracts and “contract-like instruments” prohibiting “racially discriminatory DEI activities.” The EO directed the FAR Council to issue an implementing deviation.
Consistent with the EO’s directive, the FAR Council issued a memorandum, dated April 17, 2026, that includes implementation guidance and a model deviation creating FAR 52.222-90, Addressing DEI Discrimination by Federal Contractors (APR 2026) (DEVIATION APR 2026). The memorandum directs agencies to insert the new clause in covered solicitations and contracts beginning on April 24, 2026, and to “[u]pdate their Revolutionary Federal Acquisition Regulation Overhaul class deviations for parts 9, 12, 22, and 52 by April 27, 2026[.]” Agencies are expected to modify existing contracts to include the clause by July 24, 2026.
Scope of Coverage
The new clause will be included in new solicitations and resulting contracts that exceed the micro-purchase threshold, “including those for commercial products and commercial services.” The memorandum also directs agencies to amend open solicitations to include the clause. Application is limited to contracts and solicitations with “a place of delivery or performance” in the United States. As required by the EO, the memorandum mandates that the clause flow down to subcontractors at every tier. The deviation modifies FAR 12.205 and FAR 52.244-6, Subcontracts for Commercial Products and Commercial Services, to require inclusion of the clause in contracts and subcontracts for commercial products and services.
For existing contracts, the memorandum requires contracting officers to “make every effort” to obtain bilateral modifications adding FAR 52.222-90 by July 24, 2026. If a contractor refuses a bilateral modification, the memorandum instructs contracting officers to “consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience.” Contracting officers have discretion to decide whether to modify contracts that expire on or before December 31, 2026.
New Cause for Suspension and Debarment
The memorandum states that EO 14398 “establishes that agencies should not do business with contractors that engage in any racially discriminatory diversity, equity, and inclusion (DEI) activities[.]” The deviation updates FAR Part 9 to make failure to comply with FAR 52.222-90 an express cause for debarment under FAR 9.406-2(b)(viii) and suspension under FAR 9.407-2(a)(11).
The deviation does not change the statements in FAR 9.406-1(a) and FAR 9.407-1(b)(2) providing that the existence of a cause for suspension or debarment “does not necessarily require that the contractor” be suspended or debarred. Suspending and Debarring Officials (SDOs) still have discretion to decide whether noncompliance with FAR 52.222-90 warrants suspension or debarment. But, including noncompliance with the clause as one of the listed causes for suspension or debarment (rather than leaving it to the catch-all provisions permitting suspension or debarment for “any other cause of so serious or compelling a nature that it affects the present responsibility” of the contractor or subcontractor, FAR 9.406-2(c); FAR 9.407-2(c)) makes it clear that the administration expects SDOs to treat noncompliance with the clause as a matter of present responsibility.
Acknowledgement of Materiality Under the False Claims Act
As required by the EO, the clause requires contractors to recognize compliance with the clause is “material to the Government’s payment decisions for purposes” of the FCA. The government may use this provision in FCA matters to bolster government assertions that contractors who fail to accurately certify compliance should be subject to the FCA’s penalties and triple damages provision.
Paperwork Reduction Act Approvals
The FAR Council is seeking clearance from the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 for the clause’s access to records, requirement to report known or “reasonably knowable” conduct by subcontractors that “may” violate the clause, and requirement to notify the agency if a subcontractor sues and challenges the validity of the clause.
The memorandum states that agencies will be expected to enforce full compliance with these requirements once OMB approves the information collection. It also provides that, before OMB approval is obtained, “agencies may still enforce the requirement for contractors to submit existing records regarding compliance with the requirements of the clause in connection with individual investigations,” including any records requested by the Equal Employment Opportunity Commission or Department of Justice.
Litigation Challenging EO
On April 20, 2026, a coalition of higher education and minority contractor organizations filed a lawsuit in U.S. District Court for the District of Maryland challenging EO 14398 and seeking to enjoin its implementation. The lawsuit contends that the EO violates the First Amendment and exceeds the president’s authority under FPASA. With respect to FPASA, the plaintiffs argue that requiring contractors to acknowledge that noncompliance with the clause is material for purposes of the False Claims Act lacks a sufficient nexus to economy and efficiency in procurement, and therefore falls outside the president’s authority under FPASA. As written, the complaint appears to limit the FPASA argument to the FCA provision of the EO, rather than challenging the entire EO as outside the scope of the president’s authority under FPASA. As discussed in our prior alert, the EO’s assertions that DEI activities give rise to inefficiencies and costs that are passed through to the government may be insufficient for a court to find the requisite nexus between the EO’s policy and economy and efficiency in procurement for the EO to fall within the president’s authority under FPASA.
Key Takeaways
The model deviation and guidance underscore the EO’s intended broad reach, which extends to most commercial contractors and subcontractors and existing contracts. The memorandum highlights the administration’s efforts to impose consequences on contractors who are unwilling to agree to incorporate the clause into existing contracts or fail to comply with it. Such consequences range from termination to potential FCA liability and/or suspension and debarment. While making noncompliance with the clause an explicit cause for debarment still does not require SDOs to debar contractors, it may increase the likelihood that SDOs view noncompliance as relevant to present responsibility.
The emphasis on rapid implementation in the EO and memorandum means contractors may see agencies issuing their own deviations, incorporating the clause into new solicitations (and amending open solicitations to include it), and proposing bilateral modifications relatively quickly. Contractors may wish to establish an internal protocol for addressing requests for modifications to existing contracts and should consider working with experienced counsel on how to respond to those requests. Once a contractor accepts the clause either as a modification or in a new contract, it will have to flow it down to subcontractors (who will have to flow it down to lower tier subcontractors). Contractors may want to review their existing subcontracts to evaluate whether they have the right to modify such subcontracts when the corresponding prime contract is modified and, if not, to consider how to flow-down this requirement. Contractors should also consider consulting with counsel on the implications of accepting the clause for their business and may wish to document conclusions that existing practices do not violate the clause’s requirements.
Contractors should continue monitoring developments related to the clause’s implementation, including the litigation already filed.
*Special thanks to Associate Cindy Lopez for contributing to this GT Alert.
*Special thanks to Government Contracts Project Assistant Millie Koehler for contributing to this GT Alert.