Note: If your organization is not a federal contractor, or subcontractor, feel free to stop here. For the rest of us, please keep reading.

First, the ‘Bottom Line’– effective today, federal agencies must include in new contracts detailed language requiring contractors to certify they “will not engage in any racially discriminatory DEI activities” and that contractors agree to submit to federal agencies detailed data, documents, and responses to agency inquiries, as part of a planned wave of government compliance investigations.

There’s more, much more, let’s dig into the details.

Remember Executive Order 14173?

Many may recall that President Trump’s January 2025 Executive Order 14173 (EO) “Ending Illegal Discrimination and Restoring Merit Based Opportunity” introduced, though didn’t define, the concept of “illegal DEI”. Based on that EO, federal agencies would be required to include language in all federal contracts requiring federal contractors –

 to agree that its compliance in all respects with all applicable Federal anti- discrimination laws is material to the government's payment decisions for purposes of [the False Claims Act]…

Federal contracts would also include a term requiring every federal contractor –

 to certify that it does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.

Every agency was also required to identify federal contractors potentially violating the EO (engaging in “illegal DEI”), as well as identify potential litigation against such contractors. However, the EO contained no terms to implement its requirements against federal contractors, beyond potential investigations by the Department of Justice.

Also, it’s important to note that the False Claims Act allows for triple (or more) monetary damages against a federal contractor or subcontractor that “acts in deliberate ignorance of the truth or falsity of the information,” statements or certifications made to the government.

New Executive Order 14398 Implements Anti-DEI Requirements, Starting April 24th

The recent EO 14398 clarifies that Federal agencies must not do business with contractors or subcontractors that engage in any ‘‘racially discriminatory DEI activities,” 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.

The new EO also sets forth the following –

• New FAR Clause Implements this, Now: A new Federal Acquisition Regulation (FAR) clause – FAR 52.222–90 – will prohibit federal contractors from engaging in any racially discriminatory DEI activities, among other dictates, described below.

• April 24^th – New Contracts: Federal agencies must begin incorporating the new clause in solicitations and contracts over the “micro-purchase threshold” (currently $15,000) beginning today – April 24, 2026.

• July 24 – Existing Contracts: Agencies must bilaterally modify existing contracts (valued at $15,000 or more) to include FAR 52.222-90 by July 24, 2026. If a contractor refuses to sign, the contracting agency is encouraged to terminate the existing contract. Contracts due to expire by December 31, 2026, may be modified at the agency’s discretion.

Obligations & Consequences

The new FAR regulation requires contractors to do the following –

• Must Include Clause in Subcontracts: Contractors must flow down the clause to subcontractors at every tier above the micro-purchase threshold.

• Required to Furnish Upon Request All Information & Reports: Contractors must provide access to “books, records, and accounts necessary to determine the contractor’s compliance with the clause” in upcoming planned compliance investigations.

• Obligated to Report Misconduct of Subcontractors: Contractors must report any subcontractors “known or reasonably knowable conduct” that violates the clause, as well as take any appropriate remedial actions directed by the agency.

• Must Report Subcontractor Lawsuits: If a subcontractor sues, and puts into issue the validity of the clause, that fact must be reported to the agency.

• Consequences of Non-Compliance: Violations of the clause will allow an agency to cancel, terminate, or suspend a contract, as well as declare the contractor “debarred,” i.e., ineligible for future contracts.

False Claims Act Investigations & Litigation Create Significant Monetary Exposure

EO 14398 also provides that the U.S. Department of Justice (DOJ), in consultation with contracting agencies will, “consider whether to bring actions under the False Claims Act” against contractors or subcontractors that engage in racially discriminatory DEI activities.

By way of recent example, DOJ investigated IBM for alleged illegal DEI programs and the Company settled two weeks ago for $17 million.

As part of DOJ’s Civil Rights Fraud Initiative, several contractors, in addition to IBM, have already been identified for False Claim Act investigations and potential litigation. With the new executive order, FAR 52.222-90, and the planned wave of compliance investigations, we expect many more federal contractors and subcontractors will be subject to investigations and potential False Claims Act litigation.

In a justification document seeking approval to collect books, records and information from federal contractors suspected of engaging in racially discriminatory DEI activities, the Administration estimates it will annually conduct investigations seeking data, information and records from thousands of contractors and subcontractors.

What To Do Now

In one respect, EO 14398 provides some clarity: it prohibits (only) “disparate treatment” (as opposed to vague “illegal DEI”) based on race. In other words, access to and selection for employment opportunities must not be influenced by race.

However, as the recent $17 million IBM-DOJ settlement – which alleged DEI discrimination on multiple bases including race, sex, national origin – makes clear, the Administration will go wherever the facts and the alleged discrimination take them.

So, what steps should employer take now?

DEI Assessment: If you have not already, review all aspects of any programs and efforts that could be considered “DEI” – both current and those dating back six years, the typical statute of limitations for False Claims Act claims. Are there any aspects of those programs that could be considered “disparate treatment” discrimination? Immediately change any efforts that could be considered disparate treatment.

Task Force: Assemble a task force including legal, human resources, contracts/procurement, and compliance to coordinate and address the following:

• Identify current and prospective federal contracts and subcontracts that are likely to be subject to the new FAR clause;

• Prepare to flow down the new FAR clause to subcontractors as early as April 24^th but no later than July 24^th;

• Prepare for compliance investigations by contracting officers requesting data, information, records, and responses to inquiries. Conducting a “mock” investigation, under legal privilege is advisable to assess vulnerabilities.

Silberman Law will provide updates regarding EO14398, implementation of the new FAR clause, anticipated compliance investigations, and related developments, as they become available.

If you have questions in the meantime, please contact Silberman Law attorney with whom you work or simply respond to this Federal Contractor Alert.