On April 17, the Federal Acquisition Regulatory (FAR) Council issued guidance implementing Executive Order (EO or Order) 14398, Addressing DEI Discrimination by Federal Contractors, less than 30 days after the Order was signed and well ahead of the 60-day deadline the Order gave the Council to act. Because the Order required agencies to begin implementation within 30 days, the FAR Council likely took quick action to ensure a uniform government-wide approach to implementation of this requirement.

For contractors, the guidance provides more direction on how the administration expects agencies to implement the Order, including through a new contract clause, FAR 52.222-90, broad application to new and existing contracts, and mandatory flow down obligations to covered subcontracts. At the same time, there are several open questions, and the Order has already drawn a new legal challenge in the District of Maryland, where plaintiffs argue that the Order goes beyond merely requiring compliance with existing antidiscrimination law.

The Order

For context, on March 26, President Trump issued the Order, which seeks to prohibit federal contractors and subcontractors from engaging in what the Order defines as “racially discriminatory DEI [diversity, equity and inclusion] activities.”

The Order broadly defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or the allocation or deployment of resources. It also broadly defines “program participation” to include membership or participation in, or access or admission to, training, mentoring, leadership development programs, educational opportunities, clubs, associations, or similar opportunities that are sponsored or established by the contractor or subcontractor.

Pursuant to the Order, contractors and subcontractors must certify to their compliance with a provision stating that the entity agrees that it “will not engage in racially discriminatory DEI activities as defined in section 2 of [the Order].” The Order also notes that such a certification is a term “material to the government’s payment decisions” for purposes of the False Claims Act (FCA). Contractors and grant recipients must also certify that they do “not operate any programs promoting DEI [diversity, equity and inclusion] that violate any applicable Federal anti-discrimination laws.”

You can read more about the Order here.

FAR Council Guidance and New FAR 52.222-90

The FAR Council’s April 17 memorandum implements the Order through a model deviation and new clause, FAR 52.222-90, and instructs agencies to begin using the deviation on April 24, 2026, while updating agency-level deviations by April 27, 2026. The new clause closely tracks the language of the Order and applies to contracts above the micro-purchase threshold, including contracts for commercial products and commercial services, where the place of delivery or performance is in the United States. In practical terms, the guidance answers several threshold questions contractors had been asking after issuance of the Order, including whether the clause would apply to commercial contracts and whether subcontract flow-down would be mandatory. The answer to both is yes.

For new contracts, agencies must include FAR 52.222-90 in all covered solicitations and contracts above the micro-purchase threshold where the place of delivery or performance is in the United States, and the guidance specifically states that this includes commercial products and commercial services. For most civilian acquisitions, that threshold is generally $15,000, while certain defense-related acquisitions may be subject to a higher threshold, including $40,000 in specified circumstances. The memorandum further requires prime contractors to flow down the clause to covered subcontracts at any tier, including subcontracts for commercial products and commercial services, so long as the place of delivery or performance is in the United States. Application to overseas contractors and subcontractors is limited, but the clause must be included in all agreements for which the place of delivery or performance is in the United States.

Existing Contracts and Required Modifications

The guidance also directs contracting officers to modify all existing contracts valued above the micro-purchase threshold, including commercial contracts, where the place of delivery or performance is in the United States. Contracting officers are instructed to make every effort to secure bilateral modifications by July 24, 2026.

The memorandum takes a firm position on contractors who decline to modify. It states that if 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 therefore should be terminated for convenience.

There is one notable exception where modification is discretionary for contracts with a final expiration date no later than December 31, 2026. That carveout may offer limited relief for short-duration contracts nearing completion.

Additional FAR Changes

In addition to the new contracts clause, the deviation makes a handful of other changes. First, it revises FAR Subpart 9.4 to make violation of FAR 52.222-90 a new cause for both suspension or debarment, updates FAR Subpart 12.2 to include the clause among those required in commercial contracting, creates a new FAR Subpart 22.22 titled Addressing DEI Discrimination in Federal Contractors, and revises FAR 52.244-6 to incorporate the clause into the commercial subcontract flow-down framework.

The FAR Council also states that it intends to conduct full rulemaking through the notice-and-comment process. Until that process is complete, agencies are encouraged to continue using the deviation and are prohibited from issuing deviations that do not follow the FAR Council’s language without approval.

Agency Reporting and Implementation

The memorandum also notes that the Order requires each agency to review implementation and report to the president for domestic policy by July 24, 2026. The FAR Council guidance also provides direction on what agencies should include in those reports.

This accelerated implementation timeline sheds light on why the FAR Council acted in less than 30 days, despite having 60 days under the Order. By issuing a centralized model deviation quickly, the Council reduced the risk that agencies would adopt inconsistent language or materially different implementation approaches. That type of inconsistency created substantial confusion during prior government-wide implementation efforts, including the COVID-19 vaccine mandate context. The Council’s approach here appears intended to avoid a similar patchwork approach.

New Litigation in the District of Maryland

Unsurprisingly, the Order has already been challenged in court. On April 20, five associational plaintiffs – the National Association of Diversity Officers in Higher Education, the American Association of University Professors, United Academics of Maryland-University of Maryland, College Park, the National Association of Minority Contractors, and the National Association of Minority Contractors’ DMV Chapter – filed suit in the U.S. District Court for the District of Maryland against President Trump, the United States, the Executive Office of the President, numerous executive agencies and agency heads, the Office of Management and Budget, and the FAR Council.

The complaint asserts three counts. Count One alleges a First Amendment violation, arguing that plaintiffs’ members regularly engage in protected expression and association on issues involving race, ethnicity, diversity, equity, and inclusion, and that the Order chills that activity because members fear that speech or affiliation could jeopardize contracts, subcontracts, employment, sponsorships, and organizational relationships.

Count Two is also a First Amendment claim but framed more specifically as content-based discrimination and an unconstitutional condition. There, the plaintiffs argue that the Order imposes content and viewpoint-based restrictions on speech related to race, ethnicity, diversity, equity, and inclusion; conditions the receipt of federal funds on refraining from protected expression and association; and unlawfully coerces prime contractors to police and suppress subcontractors’ speech under threat of contract loss and civil or criminal exposure.

Count Three asserts that the Order’s FCA language is ultra vires, arguing that no statute gives the president authority to attach FCA consequences. It also asserts that the Order does not have the close connection to procurement economy and efficiency as required under the Federal Property and Administrative Servies Act.

The plaintiffs have asked the court to declare the Order unlawful and are also seeking preliminary and permanent injunctive relief barring implementation or enforcement. Further, the complaint asks the court to order defendants to strike any contract language already inserted to implement the Order and rescind agency directives, policies, procedures, guidance, and other implementation documents. That request matters because the FAR Council guidance is already pushing agencies to begin inserting the clause into new and existing contracts, so the litigation is aimed not just at future enforcement but at unwinding implementation already underway.

The District of Maryland is an especially important venue because this is not the court’s first encounter with the administration’s DEI orders. It previously enjoined earlier Trump DEI executive order provisions, only to be reversed by the Fourth Circuit. In that earlier litigation, the Fourth Circuit emphasized that the challenged certification language required parties only to comply with existing federal antidiscrimination law, and the court concluded that the facial challenge before it could not succeed on that record.

The new complaint is plainly drafted with that appellate history in mind. At its core, the plaintiffs argue that EO 14398 is materially different from the earlier order the Fourth Circuit reviewed. The earlier order, at least as the Fourth Circuit read it, tied certification to existing federal antidiscrimination law. In contrast, EO 14398 uses operative language requiring contractors to agree that they “will not engage in any racially discriminatory DEI activities,” a defined term that the complaint says sweeps more broadly across recruiting, employment, contracting, program participation, and resource allocation. The plaintiffs are therefore trying to position this new case not as another facial attack on a certification of compliance with existing law, but as a challenge to a substantively broader contracting prohibition that directly burdens protected speech and association and reaches beyond what the Fourth Circuit previously treated as the earlier Order’s legitimate sweep.

Looking Ahead

For federal contractors and subcontractors, the immediate focus should be practical. Companies should identify covered prime contracts and subcontracts, assess whether the place of delivery or performance is in the United States, prepare for bilateral modification requests on existing contracts, and review subcontract flow-down language and internal compliance processes. They should also consider how existing employment, supplier diversity, training, recruiting, and program participation practices could be characterized under the Order’s language, particularly given the clause’s connection to termination, suspension and debarment, and FCA risk.

At the same time, the litigation deserves close attention. The FAR Council has moved quickly to create a single implementation framework, but that same speed means the legal fight is likely to unfold while agencies and contractors are already incorporating the clause into live contracting relationships. As a result, contractors may need to navigate both immediate compliance questions and a fast-developing court challenge at the same time.

Please contact the authors if you have any questions.