Federal contractors and subcontractors must navigate a regulatory framework that actively targets diversity, equity, and inclusion (DEI) programs. This article provides a comprehensive roadmap for in-house counsel by analyzing where the implementation phase stands, how to restructure existing initiatives, what the Government intends to target, and the enforcement mechanisms available to the Government.

Introduction + Regulatory Background

On March 26, 2026, President Trump signed Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors,” prohibiting federal contractors and subcontractors from engaging in what it defines as racially discriminatory DEI activities. To implement this policy, the Federal Acquisition Regulatory Council (FAR Council) issued a memorandum on April 17, 2026, directing agencies to adopt class deviations under the Revolutionary FAR Overhaul (RFO).

These deviations required executive agencies to update their procurement guidelines and begin incorporating RFO 52.222-90 into all new solicitations and contracts valued above the micro-purchase threshold starting April 24, 2026. See FAR Council Apr. 17, 2026 Memorandum, at 2. For existing contracts, the memorandum directed contracting officers to “make every effort” to incorporate the clause via bilateral modifications by the July 24, 2026 deadline. Id. That deadline has now passed.

For contractors, the next steps in implementing EO 14398 may require aligning any corporate equal employment opportunity (EEO) programs with the EO’s merit-based principles. Moreover, prime contractors and subcontractors are now in the supply-chain management phase. Under RFO 52.222-90, federal contractors must flow the clause down to subcontractors at all tiers and monitor their subcontractors’ compliance.

On the other hand, federal agencies have entered the enforcement phase. The Government has multiple remedies at its disposal to enforce its anti-DEI initiatives. These include auditing mechanisms, contractual remedies up to termination, suspension and debarment, the Administrative False Claims Act (AFCA), and the civil False Claims Act (FCA).

Lawful DEI Program Activities Post-EO 14398

To survive government scrutiny, contractors must shift their EEO programs away from demographic-driven outcomes to focus strictly on equal opportunity and merit-based employment practices.

Previously, in the 2025 National Association of Diversity Officers in Higher Education (NADOHE) litigation challenging the constitutionality of Executive Orders 14151 and 14173, the Government represented to the court that those directives merely reinforced existing federal antidiscrimination law. Nat’l Ass’n of Diversity Officers in Higher Ed. v. Trump, 167 F.4th 86, 103 (4th Cir. 2026) (quoting DOJ’s Reply Brief at 24-25). The DOJ asserted that certain DEI activities “absolutely… fall comfortably within the confines of the law,” a position highlighted by the U.S. Court of Appeals for the Fourth Circuit in its February 6, 2026 decision. Id., at 104-105 (4th Cir. 2026) (Diaz, C.J., concurring). Additionally, the Government had also assured the court that “any good-faith uncertainty about the meaning of federal antidiscrimination laws would be a complete defense to any False Claims Act action.” Nat’l Ass’n of Diversity Officers in Higher Ed. v. Trump, No. 25-1189 (4th Cir. May 29, 2025), Reply Brief for Appellants, at 30. Citing these narrow interpretations by the DOJ, NADOHE voluntarily dismissed its 2025 complaint on June 26, 2026.

Nevertheless, the Government’s representations in the NADOHE litigation should offer limited assurance and contractors must remain vigilant about satisfying compliance obligations. Unlike the previous anti-DEI directives, EO 14398 defines “racially discriminatory DEI activities” more broadly than existing civil rights law.. For example, Sec. 2 of EO 14398 defines prohibited conduct broadly to include disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or the allocation of resources. Consequently, federal contractors implementing RFO 52.222-90 face broader requirements extending beyond the statutory frameworks of Title VII and civil rights laws addressed in the earlier litigation. Contractors’ EEO programs that were designed to be compliant with civil rights laws and directives may not be compliant with EO 14398.Alignment with the new EO and FAR 52.222-90 is necessary to mitigate enforcement risk.

To restructure an existing program, counsel should focus on the 3 core areas set forth in EO 14398, agency class deviation guidance, and recent DOJ guidance on civil rights enforcement:

  1. Eliminating Race as a Preference or Selection Criterion: Programs should not use race or ethnicity as a factor in hiring, promotions, or supplier selection. Under Section 2(a) of EO14398, “racially discriminatory DEI activities” is defined to include disparate treatment based on race or ethnicity in recruitment, employment, contracting, or resource deployment. For example, diverse slate benchmarks that mandate a minimum demographic representation in candidate pools are prohibited, as are policies that favor minority-owned or women-owned businesses as a tiebreaker or primary criterion. See Office of the Attorney General, “Guidance for Recipients of Federal Funding Regarding Unlawful Discrimination” (July 29, 2025).  The DOJ’s stated focus will be on programs that pressure management to make employment decisions based on race or ethnicity, such as setting demographic targets or tying compensation to achieving diversity goals.
  2. Ensuring Universal + Open Access: All mentoring, training, leadership development, and internship programs must be open to all qualified applicants.  As stated above, RFO 52.222-90’s broad prohibition of “program participation”  encompasses access to or membership in contractor-sponsored training, mentoring, leadership development, educational opportunities, clubs, or associations. Restricting participation to specific racial or ethnic groups, or organizing segregated training sessions, is a direct violation of RFO 52.222-90.
  3. Vetting Recruitment + Neutral Criteria for Proxy Effects: Contractors must ensure facially neutral criteria do not function as proxies for protected characteristics. See Office of Attorney General Memorandum, at 5. This includes evaluating factors such as  “lived experience” or  “diversity statements” if they are designed or applied with the intent to influence demographic outcomes or advantage candidates based on race or ethnicity. Evaluations of candidates must instead focus on measurable, job-related qualifications and skills.
  4. Flowing Down FAR 52.222-90 + Supply Chain Management: FAR 52.222-90(c), requires contractors to flow down the anti-DEI clause to all tiers of subcontracts, including commercial products/services performed in the U.S. This is a significant shift from EO 14173’s non-mandatory certification that many subs refused. Paragraph (b)(4) also puts primes in a policing role, requiring reports of any subcontractor conduct that is “known or reasonably knowable.” This obligation creates potential False Claims Act exposure absent affirmative, documented inquiries by the prime. To mitigate risk, update purchasing agreements, adopt reasonable inquiry protocols, secure broad subcontractor indemnities, and plan for potential refusals to sign bilateral mods by vendors.

Now that the July 24, 2026, deadline has passed, federal contractors must pivot to active compliance management. The mandatory flow-down and “policing” requirements of FAR 52.222-90 represent a significant departure from previous directives, creating new False Claims Act and debarment risks across the entire supply chain. As federal agencies move into the enforcement phase in its implementation of EO 14398, documented program restructuring and proactive subcontractor monitoring are essential to mitigate exposure. Stay tuned as our Government Contracts Practice continues to explore the government’s enforcement approaches and the legal defenses potentially available to contractors.