FAR Council Moves to Prohibit ‘Racially Discriminatory DEI Practices’ Through Mandatory Contract Clauses

The Federal Acquisition Regulatory Council (FAR Council) on April 20, 2026 released guidance and associated Federal Acquisition Regulation (FAR) model deviations to implement Executive Order 14398, which is aimed at combating discriminatory diversity, equity, and inclusion (DEI) initiatives by federal contractors. The guidance marks a significant escalation from aspirational policy statements to enforceable obligations by directing agencies to embed the order’s requirements into contracts and subcontracts through mandatory clauses. The inclusion of this mandatory language is also meant to further support the government’s enforcement efforts, substantiating its arguments that “illegal” DEI programs are material to its contracts—emboldening its current False Claims Act (FCA) enforcement directives.

The FAR Council issued its recent guidance (the Guidance) in response to Executive Order 14398, Addressing DEI Discrimination by Federal Contractors, issued on March 26, 2026 (the Order), which was aimed at formalizing prohibitions on “racially discriminatory DEI activities.” As highlighted in our earlier LawFlash, the Order asserts that ensuring DEI practices are not discriminatory is a core procurement requirement and directs significant enforcement efforts to ensure compliance.

The Guidance directs agencies to incorporate into contracts specific language to prohibit and identify discrimination. Specifically, contracting officers are instructed to begin immediate use of a model deviation clause—expected to be codified as FAR 52.222-90—in new solicitations and to incorporate the clause into existing contracts through bilateral modification. The clause applies broadly to federal procurements above the micro‑purchase threshold, including contracts for commercial products and commercial services, and must be used as approved by the FAR Council, without agency‑specific modification.

Consistent with the Order, the clause defines “racially discriminatory DEI activities” to mean “disparate treatment based on race or ethnicity in recruitment, employment (including hiring and promotion), contracting (including vendor agreements), program participation, or the allocation or deployment of an entity’s resources,” with “program participation” further defined to include “access to or membership in training, mentoring, leadership development, educational opportunities, and similar programs sponsored or established by the contractor or subcontractor.”

The Guidance also reflects a coordinated set of updates across multiple FAR parts, designed to integrate these requirements into the procurement framework governing contractor responsibility, labor compliance, commercial acquisitions, and mandatory subcontract flow-down requirements.

IMMEDIATE USE OF MODEL DEVIATION CLAUSE AND CONTRACT MODIFICATIONS

The FAR Council’s Guidance directs contracting officers to begin implementing FAR 52.222‑90, Addressing DEI Discrimination by Federal Contractors, as soon as practicable.

For existing contracts, the guidance is explicit that incorporation is to occur through a bilateral modification. If a contractor does not agree to inclusion of the clause, the contracting officer is directed to consider whether termination for convenience is appropriate. This instruction reflects the government’s view that compliance with the clause is a fundamental condition of—and material to—continued contract performance rather than a discretionary or ancillary obligation.

The deviation clause applies broadly to all federal procurements above the $15,000 micro‑purchase threshold, including contracts for commercial products and commercial services. Although the FAR Council has indicated that it will issue a final FAR clause through formal rulemaking, agencies must in the interim use the exact deviation text approved by the FAR Council. Agencies are not permitted to modify the clause without FAR Council approval.

FAR Structural Changes Signal Heightened Responsibility Consequences

In addition to issuing the model deviation clause, the FAR Council has updated multiple FAR parts to integrate the Order’s requirements. These changes align DEI‑related compliance with longstanding mechanisms governing contractor responsibility, labor compliance, and enforcement under both contractual and statutory regimes.

FAR Part 9 (Contractor Qualifications) has been updated to make explicit that failure to comply with the requirements of FAR 52.222‑90 constitutes a basis for suspension or debarment. Pursuant to FAR Part 9, a contractor must be found responsible in order to receive and perform a federal contract, and responsibility determinations focus on whether the contractor has the integrity, business ethics, and internal controls necessary to be entrusted with federal funds. This update removes any ambiguity as to whether violations of the new clause implicate contractor responsibility and confirms that agencies may pursue exclusionary remedies without a predicate finding of FCA liability or other adjudicated misconduct. In practical terms, the change reinforces that compliance with the government’s prohibition on “discriminatory DEI” is now firmly embedded within the discretionary, forward‑looking responsibility determinations that suspension and debarment officials routinely evaluate, including assessments of integrity, business ethics, and the adequacy of compliance controls.

FAR Part 12 (Acquisition of Commercial Products and Services) has been revised to include the new clause in Table 12‑3, reinforcing that the Order’s requirements apply fully even to contracts for commercial products and commercial services. In practical terms, this change means the clause applies not only to bespoke, highly regulated government contracts but also to contracts that more closely resemble ordinary commercial transactions and are often subject to streamlined procurement rules. This revision underscores that contractors cannot rely on commercial‑item status to limit the reach of the clause and signals that agencies expect DEI‑related compliance obligations to be treated as core contractual requirements across all contract types, including procurements that more closely resemble the government procuring goods and services in the commercial market that historically have carried fewer government‑specific compliance burdens. The breadth of this clause could certainly inform future materiality arguments in FCA and other enforcement actions.

FAR Part 22 (Application of Labor Laws) now includes a new subpart—Subpart 22.22, Addressing DEI Discrimination by Federal Contractors—which sets forth definitions and policy statements drawn from the Order and the deviation clause. By situating these requirements within Part 22, the FAR Council has further framed compliance as a labor‑related obligation subject to the kinds of oversight and enforcement tools familiar to employment lawyers, including agency review of hiring, promotion, and training practices; scrutiny of workplace policies and programs; employee complaints or whistleblower reports; and expectations around corrective action such as policy changes, retraining, or program modifications. This placement also reinforces the government’s view that DEI‑related compliance bears directly on workforce practices and internal governance, rather than being treated solely as a contractual certification issue.

Finally, FAR Part 52 (Solicitation Provisions and Contract Clauses) has been updated to formally create FAR 52.222‑90 and to add the clause to the list of provisions required to be flowed down to subcontracts for commercial products and commercial services through FAR 52.244‑6. This change confirms that the government expects compliance obligations—and potential exposure—to extend throughout the supply chain and places increased emphasis on prime contractors’ oversight, documentation, and enforcement of subcontractor compliance.

Taken together, these coordinated FAR revisions reflect a deliberate effort to embed the Order’s requirements across the procurement system. They also signal that agencies are likely to view compliance failures through multiple lenses simultaneously, including contractual remedies, responsibility determinations, and potential FCA enforcement. For example, as we discussed in a previous LawFlash, the DOJ has established a Civil Rights Fraud Initiative that investigates and pursues the misuse of federal funds by contractors, including through “diversity, equity, and inclusion (DEI) programs that assign benefits or burdens on race, ethnicity, or national origin.”

FLOW‑DOWN OBLIGATIONS AND THE SUBCONTRACTOR VS. VENDOR DISTINCTION

Consistent with the FAR Council’s updates, contractors are required to flow down FAR 52.222‑90 to their subcontractors, including subcontractors providing commercial products or commercial services. The flow‑down obligation attaches once the clause appears in the prime contract and extends to lower‑tier subcontractors performing work under the federal contract.

In implementing these flow‑down requirements, contractors should first carefully assess whether lower‑tier counterparties qualify as subcontractors subject to FAR flow‑down obligations, as opposed to vendors or suppliers that are generally not. While the distinction is fact‑specific and not always bright‑line, subcontractors are typically entities that perform a portion of the prime contract’s requirements, assume responsibility for delivering contract‑specific work, or exercise discretion that directly affects contract performance. By contrast, vendors more commonly provide commercial, off‑the‑shelf goods or ancillary services that are not uniquely tied to performance of the federal contract and do not require compliance with contract‑specific terms.

This distinction takes on heightened importance under the FAR Council’s guidance. The express requirement to flow down FAR 52.222‑90—including to subcontracts for commercial products and commercial services—signals an expectation that prime contractors will exercise some level of supply chain awareness where lower‑tier entities are engaged in contract performance. At the same time, overinclusive flow‑down to entities that function as vendors rather than subcontractors may introduce unnecessary compliance complexity and commercial friction. Contractors should therefore consider documenting the basis for their subcontractor determinations and aligning those determinations with existing subcontracting, responsibility, and compliance frameworks, particularly given the potential suspension and debarment consequences associated with violations of the clause.

ONGOING CHALLENGES TO THE ORDER

The FAR Council’s guidance was issued against the backdrop of ongoing litigation challenging the legality of Executive Order 14398. Associations representing federal contractors and subcontractors have filed suit in the US District Court for the District of Maryland seeking to enjoin enforcement of the Order. The complaint alleges that the Order exceeds the president’s authority under the Federal Property and Administrative Services Act, is unconstitutionally vague in defining “racially discriminatory DEI activities,” and inadequately ensures due process.

Although the outcome of that litigation could ultimately affect the scope or enforceability of the Order and its implementing regulations, the FAR Council’s guidance reflects the government’s current expectation that agencies proceed with implementation unless and until a court orders otherwise.

PRACTICAL CONSIDERATIONS FOR CONTRACTORS

As agencies begin incorporating the deviation clause and the FAR Council advances toward final rulemaking, contractors should consider several practical steps.

Prepare for near‑term contract action and negotiations with contracting officers. Contractors should promptly review active contracts and pending solicitations to identify where FAR 52.222‑90 (or the language in the deviation) is likely to be incorporated and to anticipate bilateral modification requests. For existing contracts, contractors should be prepared for discussions with contracting officers regarding timing, scope, and implementation mechanics, recognizing that the FAR Council’s guidance contemplates termination for convenience where agreement cannot be reached.

Before agreeing to any bilateral modification, contractors may wish to ensure they have a coordinated internal process in place to identify affected contracts, notify relevant stakeholders across legal, compliance, human resources, and business teams, and confirm readiness to comply with the clause’s requirements. Early engagement may be particularly important for contracts involving complex workforces, layered subcontracting, or commercial‑item structures where integration of the clause may raise operational questions.

Assess governance, documentation, and certification readiness. Contractors should evaluate whether their internal governance structures—including management oversight, escalation pathways, and contemporaneous documentation—are sufficient to support good‑faith certifications of compliance with FAR 52.222‑90 and the Executive Order’s definition of “racially discriminatory DEI activities,” rather than solely existing anti‑discrimination laws.

Given the clause’s express linkage to payment materiality and suspension and debarment consequences, agencies may look beyond written policies to assess how DEI‑related decisions are made, reviewed, and documented in practice, even where there is no evidence of intentional or knowing misconduct. Contractors may wish to confirm that responsibility for compliance is clearly assigned, that decision‑making is traceable, and that records can substantiate how programs and practices were evaluated against the clause’s specific requirements.

Reexamine DEI‑related programs through a procurement and enforcement lens. In light of the FAR Council’s integration of the clause into Parts 9, 12, and 22 of the FAR, contractors should reassess DEI‑related programs not only as employment initiatives but as contractual compliance obligations with potential procurement consequences. This assessment may include reviewing hiring, promotion, training, mentoring, leadership development, supplier engagement, and resource‑allocation practices to evaluate how they align with the clause’s definitions. Contractors should consider whether existing programs can be clearly defended as race‑neutral in design and implementation, particularly where those programs intersect with contract performance or are referenced in certifications.

Carefully manage lower‑tier relationships to ensure flow‑down obligations are applied only where required and preserve the subcontractor-vendor distinction. Prime contractors should carefully evaluate subcontracting arrangements to determine which lower‑tier entities qualify as subcontractors subject to flow‑down obligations under FAR 52.222‑90 and which are more appropriately treated as vendors. As highlighted, this analysis should focus on whether the lower‑tier entity performs a portion of the contract requirements, exercises discretion affecting contract performance, or assumes responsibility for deliverables tied to the federal contract.

Contractors should consider updating subcontract templates, onboarding processes, and compliance representations accordingly, while also documenting the basis for subcontractor determinations in anticipation of potential agency review. Notably, however, if a lower-tier entity has been treated as a subcontractor historically (e.g., subject to the flow-down of other FAR requirements), then the introduction of this clause may not be a reason to change course unless there is a compelling reason to reclassify the counterparty as a vendor.

Plan for parallel scrutiny across contractual, responsibility, and enforcement channels. The FAR Council’s updates make clear that compliance issues may be viewed through multiple lenses simultaneously, including contractual remedies, responsibility determinations, and potential FCA enforcement. Given the Order’s affirmative reporting and certification obligations, contractors should ensure they have clear, well‑communicated internal reporting mechanisms and exercise due diligence in promptly assessing and investigating any allegations of improper discriminatory conduct.

Contractors should ensure that internal reporting mechanisms, investigation protocols, and remediation processes are aligned to address concerns efficiently and consistently across these channels. Additionally, in light of the clause’s access‑to‑records provisions, contractors may wish to consider whether federal contract funds are appropriately segregated and used solely for contract performance, rather than for general operating expenses, to facilitate compliance with potential agency audit or inspection requests. Advance planning may help avoid inconsistent responses to agency inquiries, whistleblower allegations, or contracting officer requests for information.

Monitor litigation developments and evolving regulatory guidance. Contractors should continue to monitor the pending litigation challenging Executive Order 14398, as well as ongoing FAR rulemaking, including issuance of the final FAR 52.222‑90 clause. Although the FAR Council’s guidance reflects the government’s expectation that agencies will proceed with implementation in the near term, future judicial or regulatory developments could affect enforcement posture, timing, or scope. Staying informed will be important as contractors make longer‑term decisions about compliance investments and program design.

STAY INFORMED

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