The Federal Acquisition Regulatory Council (FAR Council) published a memorandum on April 17, 2026, directing agency procurement officials to implement Revolutionary FAR Overhaul (RFO) class deviations and take immediate steps to carry out the administration's latest executive order targeting diversity, equity, and inclusion (DEI) in federal contracting. Executive Order (E.O.) 14398, "Addressing DEI Discrimination by Federal Contractors," issued on March 26, 2026, left little discretion to the FAR Council, providing the text of the required definitions and contract clause and an aggressive implementation timeline. Contractors should expect the new clause to appear in new solicitations and modifications to existing contracts and open solicitations immediately.

Far from a routine regulatory update, the new mandatory FAR clause elevates compliance with the new FAR clause prohibiting "racially discriminatory DEI," making it an express condition of eligibility to do business with the federal government. The E.O. and implementing guidance make explicit the severe penalties for non-compliance, including contract termination, suspension, debarment, and False Claims Act (FCA) exposure, but do little to clarify the boundaries of the conduct that constitutes a violation. Notably, both the E.O. and the implementing RFO deviations apply only to discrimination based on race and ethnicity. Gender and sexual orientation, protected characteristics addressed by prior "illegal DEI" orders, are absent.

Immediate Impact of the FAR Council's Memorandum 

The changes implemented by the new guidance apply to nearly all federal contracts and "contract-like instruments," including contracts for commercial products and commercial services, as well as subcontracts at all tiers. The only contracts not subject to the new requirements are those below the micro-purchase threshold and contracts performed and delivered entirely outside the U.S. The following deadlines apply to all other contracts and solicitations:

• April 24, 2026: Agencies must begin incorporating the new clause, FAR 52.222-90, Addressing DEI Discrimination by Federal Contractors (APR 2026) (DEVIATION APR 2026), into all new solicitations and resulting contracts.
• April 27, 2026: Agencies must revise their class deviations for FAR Parts 9, 12, 22, and 52 to conform to the FAR Council's model deviations.
• July 27, 2026: Agencies must modify all existing contracts that extend beyond December 31, 2026, to include FAR 52.222-90. Contracting officers (COs) may use discretion to decide which contracts ending before that date should be modified. Although the guidance refers to "bilateral" modifications, contractors and subcontractors that refuse to accept the clause could face termination for convenience.

Requirements of the New Clause (FAR 52.222-90)

The new clause, taken directly from the E.O., imposes a series of compliance and reporting obligations on prime and subcontractors. Contractors must:

• Certify that they do not engage in any "racially discriminatory DEI activities."
• Acknowledge that violations may result in suspension and debarment, in addition to contract termination.
• Provide access to all records, documents, and information necessary "for purposes of ascertaining compliance."
• Flow down the clause to subcontractors of all tiers, including those providing commercial products and services.
• Report any "known or reasonably knowable" violations by subcontractors and comply with agency-directed remedial actions.
• Notify the CO if a subcontractor initiates litigation challenging the validity of the clause.
• Acknowledge that certification of compliance is material to the government's payment decisions, increasing potential exposure under the FCA. 

Expansion and Implementation of the Administration's Anti-DEI Agenda

The latest guidance from the FAR Council is a significant step forward in implementing the administration's expressed policy position of removing DEI from federal contracting. The underlying March 2026 E.O., which we explained in more detail here, was itself an escalation of the administration's efforts to eliminate affirmative action, equity-related preferences, and diversity and inclusion initiatives from government contracting. Those efforts began on the first day of President Trump's second term with earlier orders, including E.O. 14151, "Ending Radical and Wasteful Government DEI Programs and Preferencing," and E.O. 14173, "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," which targeted "unlawful DEI." While E.O. 14398 limits its scope to DEI programs based on race and ethnicity, it expands the conduct potentially covered and the severity of the consequences for violations. 

The order characterized DEI activities as "unethical and often illegal," raising the possibility that it prohibits actions the administration views as discriminatory even if they are not illegal. The E.O.'s definitions, now incorporated into agency RFO deviations, are broad. They encompass not only hiring and promotion decisions, but also the "allocation or deployment of an entity's resources." The order also increases risk by tying compliance failures to present responsibility determinations, raising the prospect of enterprise-wide eligibility consequences rather than merely contract-specific penalties.

FAR Council Guidance and Required Class Deviations

To implement the E.O., the FAR Council issued model class deviations that agencies must adopt without variance unless they seek approval from the Council. The additions are in tension with the RFO's stated goal of eliminating most non-statutory clauses and streamlining compliance obligations, particularly for contracts involving commercial products and services.

By April 27, 2026, agencies must revise their RFO deviations to include the following:

• Part 9 (Contractor Qualifications) 
  • FAR 9.406-2(b)(1)(viii) adds failure to comply with FAR 52.222-90 as a basis for debarment.
  • FAR 9.407-2(a)(11) adds the same failure as a basis for suspension.
• Part 12 (Acquisition of Commercial Products and Commercial Services) 
  • FAR 12.205(a)(3) is revised to require inclusion of FAR 52.222-90 in contracts for commercial products and commercial services.
• Part 22 (Application of Labor Laws to Government Acquisitions) 
  • Adds new Subpart 22.22, defining "program participation" and "racially discriminatory DEI activities," and mandating inclusion of FAR 52.222-90 in applicable solicitations and contracts.
• Part 52 (Solicitation Provisions and Contract Clauses) 
  • Adds FAR 52.222-90 as drafted by E.O. 14398.
  • Revises FAR 52.244-6 to include 52.222-90 as a required flowdown in subcontracts for commercial products and commercial services.

Reporting Burden and Audit Risk

The FAR Council sought emergency approval from the Office of Management and Budget (OMB) under the Paperwork Reduction Act for the additional reporting burden imposed by FAR 52.222-90. In its submission, the Council estimated 6,825 audits would occur this year. It projected that contractors will require an average of 70 minutes to respond to an initial records request, while government personnel will spend 16 hours reviewing submissions.

The modest time estimate for contractors, despite the clause's requirement to provide access to "all information and reports, including books, records, and accounts," suggests that contractors may receive limited time to respond to audit requests. While OMB approval is still pending information collection to support audits, the FAR Council's memorandum authorizes agencies to begin requesting records immediately in connection with investigations.

FCA Exposure

Contractors have been on notice of the government's interest in using the FCA as an enforcement tool against DEI. The Department of Justice (DOJ) announced the Civil Rights Fraud Initiative in May 2025, a task force dedicated to using the FCA to pursue recipients of federal funds who knowingly violate civil rights law. The new FAR clause's language requiring contractors to acknowledge that compliance is material to the government's payment decisions is designed to smooth one hurdle to FCA claims, but contractually designating DEI compliance as material won't be dispositive in court. Even if it carries weight, FCA liability still requires scienter. Given the lack of clear guidance on what constitutes "racially discriminatory DEI activities," proving that a contractor knowingly submitted a false certification may present challenges for the government. 

Litigation Challenging E.O. 14398

On April 20, 2026, a coalition of higher education and government contractor associations filed suit in Maryland district court seeking to enjoin enforcement of E.O. 14398. National Association of Diversity Officers in Higher Education, et al. v. Trump, No. 8:26-cv-01532 (D. Md.). The plaintiffs contend that the E.O. imposes an unlawful "diversity ban" on contractors based on the incorrect assertion that DEI is inherently discriminatory. The lawsuit challenges the policy on the grounds that it chills protected speech, constitutes a content-based violation of the First Amendment, and exceeds the president's authority under the Federal Property and Administrative Services Act (FPASA).

The litigation follows a February 2026 decision by the U.S. Court of Appeals for the Fourth Circuit vacating a preliminary injunction against E.O. 14173, in which the court held that requiring recipients of federal funds to certify compliance with antidiscrimination laws was not facially unconstitutional, while leaving open the possibility of as-applied challenges.

Open Issues for Contractors

Key unresolved issues include:

• How DEI initiatives related to protected classes other than race and ethnicity will be incorporated into contracting regulations and whether previous orders addressing "illegal DEI" still control when certifying compliance with all applicable laws. 
• When and how similar obligations will be incorporated into grants, other transaction agreements, and other "contract-like instruments."
• Whether FPASA authorizes the president to direct FAR class deviations and dictate mandatory clause text, and if it does, what impact notice and comment rulemaking can have on a clause set forth in an executive order.
• How ongoing litigation will affect enforcement.
• Whether courts will give weight to the clause's express acknowledgment of FCA materiality.
• How federal requirements will interact with state and local contracting and employment obligations.
• Whether the implementation of E.O. 14398 will have a chilling effect on contractors seeking to enter the federal marketplace.

Conclusion

The FAR Council's implementation of E.O. 14398 represents a fundamental shift in how DEI-related issues are regulated in federal contracting. Contractors should treat compliance with FAR 52.222-90 as a high-risk, enterprise-wide obligation requiring immediate, coordinated attention from legal, compliance, human resources, contracting, and executive leadership. Until clearer guidance emerges, whether through rulemaking or litigation, risk management and documentation will be critical.

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