EMPLOYMENT LAW NEWS
FAR Council Issues Memorandum on Trump’s New DEI Executive Order
By Dana Holle, GovDocs Counsel and Manager Employment Law and Compliance
May 7, 2026
The Trump Administration’s new Executive Order 14398 and related FAR Council guidance introduce stricter rules around DEI practices for federal contractors, including a required contract clause prohibiting “racially discriminatory DEI activities.” The update also details key compliance deadlines, subcontractor obligations, potential penalties, and the ongoing legal challenges that may affect how the order is enforced.
Federal scrutiny of diversity, equity, and inclusion (“DEI”) programs is rapidly gaining momentum under the Trump Administration. That trend continued on March 26, 2026, when President Trump signed Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors.”
What Is Executive Order 14398?
Executive Order 14398 (“EO 14398”) creates a new clause for incorporation into federal contracts requiring that federal contractors and subcontractors “will not engage in any racially discriminatory DEI activities.”
EO 14398 also requires the Federal Acquisition Regulatory (“FAR”) Council to issue deviation and interim guidance, consistent with the applicable law, within 60 days.
In line with these requirements, on April 17, 2026, the FAR Council published a memorandum implementing EO 14398 and issuing deviation text for federal contracts.
New FAR Clause in Federal Contracts
Following the requirements set forth in EO 14398, the FAR Council has issued the following deviation text for the new federal contract clause at FAR 52.222-90:
ADDRESSING DEI DISCRIMINATION BY FEDERAL CONTRACTORS
(a) Definitions. As used in this clause—
Program participation means 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.
Racially discriminatory diversity, equity, and inclusion (DEI) activities means 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.
(b) In connection with the performance of work under this contract, the Contractor agrees as follows:
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(1) The Contractor will not engage in any racially discriminatory DEI activities.
(2) 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 this clause.
(3) In the event of the Contractor’s or a subcontractor’s noncompliance with this clause, this 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.
(4) The Contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the Contracting Officer and take any appropriate remedial actions directed by the Contracting Officer.
(5) 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 this clause.
(6) The Contractor recognizes that compliance with the requirements of this clause are material to the Government’s payment decisions for purposes of 31 U.S.C. 3729(b)(4).
(c) The Contractor must include the substance of this clause, including this paragraph
(c), in subcontracts at any tier, including those for commercial products and commercial services, for which the place of delivery or performance is in the United States.
FAR Memorandum Implementation Deadlines for Federal Agencies and Contractors
The FAR Council’s memorandum provides deadlines for agencies and contractors to meet their contractual obligations.
First, new solicitations and resulting contracts valued over the micro-purchase threshold of $15,000, including those for commercial products and commercial services, and for which the place of delivery or performance is in the United States, must include the new FAR 52.222-90 clause as of April 24, 2026. This clause flows down to subcontracts at any tier.
How EO 14398 Affects Existing Federal Contracts
Second, for existing contracts with the same requirements as new contracts detailed above, contracting officers must make every effort to bilaterally modify these existing contracts by July 24, 2026. If a contractor refuses to agree to a bilateral modification, the contracting officer may consider whether the contract continues to meet the agency’s needs without the modification and determine if termination for convenience is appropriate. It is also at the contracting officer’s discretion whether to modify a contract to include the FAR 52.222-90 clause when the contract expires before Dec. 31, 2026.
Third, the FAR Council intends to conduct rulemaking on agency class deviation effective dates. It has also just initiated rulemaking, starting with the notice and comment period, for information collections and reporting related to the order.
Legal Challenges to EO 14398
On the tail end of the issuance of EO 14398, legal action has already been taken against the order in the U.S. District Court for the District of Maryland. The lawsuit seeks to enjoin, or block, the enforcement of EO 14398. The complaint alleges primarily that EO 14398 violates the First Amendment, exceeds presidential authority, and provides an overly broad definition of “racially discriminatory DEI activities.”
Federal Contractor Next Steps
The FAR Council’s implementation of EO 14398 significantly reshapes federal contractor compliance by imposing new restrictions on DEI-related practices and embedding them into contract clauses. With the FAR 52.222-90 clause already in effect for new contracts and expected to be incorporated into most existing agreements, contractors should promptly review their policies, programs, and subcontractor relationships for compliance. At the same time, an ongoing legal challenge introduces uncertainty, making it critical for contractors to monitor developments by both the executive and judicial branches of government.
