Recent developments in government contracting include a federal court decision addressing the scope of the administration’s diversity, equity, and inclusion (DEI) requirements for federal contractors, two Government Accountability Office (GAO) decisions involving defense procurement, and a new US Department of Justice (DOJ) directive calling for expanded and coordinated fraud enforcement. Together, these developments reflect evolving contractor compliance obligations, agency discretion in procurement decisions, and increased scrutiny of potential fraud involving federal programs and contracts.
Maryland Federal Court Declines to Block Contractor DEI Executive Order, Adopts Narrow Interpretation
On October 14, 2026, the US District Court for the District of Maryland denied a request to preliminarily enjoin Executive Order 14398 and its implementing procurement guidance concerning racially discriminatory DEI activities by federal contractors.
The court interpreted the requirement as targeting intentional discrimination prohibited by existing antidiscrimination law rather than DEI activities generally. It emphasized that the order does not prohibit lawful DEI activities or protected speech, citing DOJ representations that the order would not reach activities such as research involving racial disparities, discussions of historical discrimination, or other DEI efforts that comply with federal law. The court also rejected a facial vagueness challenge while leaving other Administrative Procedure Act issues unresolved.
For contractors, the court’s narrow interpretation provides near-term guidance while leaving the order’s contractual and enforcement obligations in place. The court also distinguished between the order’s facial validity and its potential application in individual enforcement actions.
The court noted that contractors facing contract cancellations or False Claims Act (FCA) proceedings based on DEI activities that do not constitute unlawful disparate treatment could pursue as-applied challenges and rely on DOJ’s representations regarding the order’s limited scope. It also acknowledged that enforcement targeting speech or conduct outside the contract could constitute unconstitutional retaliation.
Contractors should continue tracking contract clauses, modifications, lower-tier flowdowns, and reporting obligations; documenting good-faith compliance with federal antidiscrimination law; and assessing employment, procurement, eligibility, and FCA risks together. The decision suggests that a DEI program alone does not establish a violation, and a payment acknowledgment does not itself establish FCA liability.
For a more detailed discussion of this decision, see our October 16, 2026 LawFlash, Maryland Court Declines to Block Contractor DEI Executive Order, Adopts Narrow Reading.
GAO Upholds Navy Sole-Source Award to Preserve Submarine Escape Suit Manufacturing Capacity
GAO recently denied a protest challenging the Navy’s decision to award a sole-source contract for submarine escape suits to Mustang Survival Manufacturing Inc.
In its October 7, 2026 decision, GAO rejected a protest brought by incumbent supplier RFD Beaufort Inc., which argued that the Navy lacked sufficient evidence that Mustang would discontinue production without the award. The Navy had historically relied exclusively on RFD Beaufort for the specialized suits but sought to establish an additional qualified manufacturer to preserve its industrial mobilization capabilities.
GAO upheld the Navy’s noncompetitive award under its industrial mobilization authority, finding that the agency reasonably concluded a 542-suit award was necessary to preserve Mustang’s production capability. GAO also rejected the argument that the Navy was required to conduct a detailed financial analysis demonstrating that Mustang’s production line would otherwise close.
The decision reflects the discretion afforded to military agencies when using noncompetitive procedures to preserve industrial mobilization capacity.
Contractors seeking source-maintenance awards should support the record with concrete evidence of qualification investments, carrying costs, market-exit risk, minimum economic quantities, and the strategic consequences of losing a supplier. Incumbents considering a protest should focus on whether the agency’s assumptions, selected source, and award quantity are supported by the contemporaneous record.
GAO Sustains Protest After DoD Overlooks Material Offline Access Requirement
GAO recently sustained a protest challenging the US Department of Defense’s (DoD’s) award of a contract worth approximately $7.9 million for an academic skills training application for servicemembers.
The solicitation required a web-based learning platform offering offline course access and temporary storage of users’ progress when internet connectivity was unavailable. GAO concluded that the agency unreasonably determined that the awardee satisfied this requirement, even though the proposal did not demonstrate the required offline functionality.
Although the awardee received a higher technical rating, GAO found that the agency improperly relied on the proposal’s reference to the US Department of Labor’s Make America AI-Ready initiative to fill the gap. Because a reasonable evaluation could have resulted in a different award decision, GAO sustained the protest and recommended reevaluating proposals.
The decision highlights the importance of directly addressing every material solicitation requirement. Proposal teams should consider using compliance matrices that map each mandatory requirement to specific proposal language and supporting evidence.
Agencies should also document why evaluator concerns are changed or removed, particularly where an individual evaluator initially identifies a deficiency. For protesters, the decision highlights the importance of comparing an awardee’s proposal against the solicitation’s mandatory requirements and examining whether the final consensus evaluation adequately explains departures from individual evaluator findings.
DOJ Directs Expanded Fraud Enforcement Measures, Including Against Government Contractors
On October 7, DOJ issued a memorandum directing prosecutors in its National Fraud Enforcement Division to adopt a comprehensive approach to investigating and prosecuting fraud, including fraud involving federal programs and procurement.
Issued by Assistant Attorney General Colin McDonald as Directive 26-13, the memorandum builds on the division’s August 13, 2026 enforcement priorities and directs prosecutors to pursue the full range of available criminal charges and civil remedies.
Among other measures, prosecutors must evaluate potential tax offenses in every fraud investigation and coordinate with Internal Revenue Service Criminal Investigation when tax charges could advance a prosecution or asset recovery. The directive also identifies securities fraud and market misconduct involving government contractors as enforcement priorities.
For contractors, the directive could have practical implications, particularly given its emphasis on early intervention and financial recovery. Prosecutors are instructed to coordinate with the division’s Asset Recovery Section throughout investigations to pursue preindictment asset seizures, restraining orders, forfeiture proceedings, and civil injunctions aimed at disrupting ongoing fraud.
The directive also encourages prosecutors to consider consumer fraud, identity theft, and related charges where individuals are harmed, and to use cooperating witnesses and undercover operations to identify additional participants.
DOJ further reinforces its focus on corporate accountability and prosecuting companies that defraud federal taxpayers while recognizing voluntary disclosure, cooperation, and remediation in appropriate cases.
Contractors should assess controls around pricing, billing, product substitution, subcontracting, certifications, and government program data; confirm internal escalation and document preservation procedures; and ensure that legal, tax, compliance, finance, and cybersecurity teams are prepared to coordinate when potential issues arise.
Looking Ahead
These developments illustrate the continuing interplay between judicial oversight, agency procurement discretion, and federal enforcement priorities. Contractors should monitor litigation concerning DEI-related contract requirements, carefully evaluate solicitation and proposal compliance, and account for the broad discretion agencies may exercise when protecting critical defense industrial capacity. At the same time, DOJ’s expanded fraud enforcement directive highlights the importance of accurate contractor representations, effective internal controls, and coordinated responses to potential compliance concerns.