In a significant development for federal contractors, the Federal Acquisition Regulatory Council (FAR Council) issued an April 17, 2026 deviation memorandum to implement Executive Order (EO) 14398, which prohibits federal contractors from engaging in racially discriminatory DEI activities. The guidance outlines a government-wide contract deviation through a new FAR clause and directs contracting agencies to immediately begin implementing the new requirements into federal contracts valued at $15,000 or more.
The FAR Council’s April 17 action does three things at once:
While many questions remain, the FAR Council’s class deviation converts EO 14398 from policy direction into immediately enforceable contract law across the federal procurement system. This development has significant impacts for federal contractors and subcontractors and requires immediate action from multiple stakeholders within contracting companies.
When EO 14398 was issued on March 26, 2026, it outlined specific implementation timetables, including requiring that agencies begin inserting the contract clauses outlined in the EO into their contracts within 30 days. The FAR Council, which is responsible for managing and controlling procurement policies and regulations across executive branch agencies, was directed to issue guidance regarding agency implementation of the clause within 60 days.
The Federal Acquisition Regulation (FAR) sets the standard rules for how the U.S. government buys goods and services. When those rules need to be adjusted due to new laws, emergencies, or policy changes, and the change applies to more than one contract or procurement action, the rules are temporarily amended through a class deviation until the FAR is formally updated. A class deviation in the FAR is an authorized change or exception that applies immediately and broadly to multiple contracts or actions, rather than just a single case.
Contract coverage is broad. Agencies are instructed to insert the new clause into solicitations and contracts above the micro-purchase threshold of $15,000 for which the place of delivery or performance is within the United States. Covered contracts include:
The deviation memorandum specifically provides that the clause “flows down to subcontracts at any tier” that are also delivered or performed in the United States.
Agencies are to include the new contract clause in new solicitations and contract awards beginning April 24, 2026. Agencies must also amend open solicitations to add the clause and seek bilateral modifications of existing contracts by July 24, 2026. If a contractor refuses to agree to a contract modification, contracting agencies are to consider whether the contract should be terminated for convenience. This approach makes the deviation unusually aggressive in pushing the clause into existing contracts, not just future ones. Agencies have only narrow discretion to omit the new clause from existing contracts scheduled to be fully concluded by December 31, 2026.
After a definitions section at 52.222-90(a), Section (b) of the new FAR clause includes six substantive requirements that contractors must agree to:
52.222-90(b)(1) Not engage in “racially discriminatory DEI activities”
The FAR clause incorporates the prohibition from EO 14398 on “racially discriminatory DEI activities.” Section (a) of the new FAR clause defines this prohibition as disparate treatment based on race/ethnicity in recruitment, employment, contracting/vendor agreements, program participation, or allocation or deployment of an entity's resources.
The clause also incorporates the EO’s definition of program participation without change: membership or participation in, or access or admission to training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.
52.222-90(b)(2) Provide information and audit access
Contractors must furnish reports and information and provide access to books, records, and accounts so that contracting agencies can evaluate compliance with EO 14398. As discussed further below, the FAR Council has made clear that contracting agencies will request records to confirm compliance, and that will begin immediately.
52.222-90(b)(3) Accept enforcement consequences
Noncompliance may lead to cancellation, termination, or suspension of existing contracts. In addition, contractors may be debarred, or ineligible for future contracts. The FAR deviation specifically adds noncompliance with EO 14398 to the list of reasons a contracting officer may take such actions under FAR Subpart 9.4 - Debarment, Suspension, and Ineligibility. Thus, the risks of noncompliance are significant, especially for organizations whose primary business is with the federal government.
52.222-90(b)(4) Subcontractor and compliance reporting obligations
Contractors have significant, new obligations with respect to their subcontractors including to:
- Report known or reasonably knowable subcontractor violations to the contracting agency
- Take remedial action as directed by the contracting agency
This extends compliance obligations down the supply chain, creating an immediate need for prime contractors to review and update subcontracting and vendor agreements as well as compliance monitoring plans.
52.222-90(b)(5) Notify government of challenges to clause
Along the same lines, the FAR clause creates an obligation to notify the government of litigation between the contractor and a subcontractor that puts at issue, in any way, the validity of the new FAR clause. The deviation does not specify how such notification should occur, or how quickly notification must be made.
52.222-90(b)(6) Agree compliance is material under the False Claims Act
Finally, the contractor agrees that compliance with the requirements of the clause is material to payment decisions for the contract, under the False Claims Act (FCA). The FCA is a federal law that states that a federal contractor or grantee who knowingly submits, or causes to be submitted, false claims to the government for payment is liable for three times the government’s damages, as well as penalties and costs. While the federal government can bring FCA claims, the law also allows private citizens to act as whistleblowers and file suit on behalf of the government. These are called “qui tam” suits, and when they are successful, the person who brought the suit may receive a portion of the government’s financial recovery.
This Administration has relied heavily on the FCA to end what it considers “illegal DEI” by employers. However, it is important for employers to realize that there is now a triple threat should DEI practices run afoul of the law – the FCA, liability under existing federal civil rights laws such as Title VII of the Civil Rights Act of 1964, and now contractual remedies under new FAR clause 52.222-90. Thus, the risks of having non-compliant employment practices are higher than ever and contractors should take reasonable steps to monitor their compliance on a regular basis (see our recommendations below!).
In addition to issuing guidance on implementing the required contract clauses, the FAR Council also sought emergency approval under the Paperwork Reduction Act (PRA) to allow contracting agencies to gather information about EO 14398 compliance, as required by specific provisions of the new FAR clause. While the information collection request (ICR) supporting statement does not specify what type of records or data will be collected from contractors, it does estimate that 6,825 “audits” or information requests will be completed this year. Contractors must act immediately to implement the requirements of EO 14398 and new FAR clause 52.222-90 into their compliance programs.
The ICR also estimates it will take contractors 1.167 hours to provide the information required by parts b(2), b(3), and b(4) of the new FAR clause – one hour to furnish compliance reports and five minutes each to report subcontractor violations and provide notice of pending litigation. The ICR estimates that the government will spend approximately sixteen hours reviewing the submission. Anyone who has gone through an audit by the Office of Federal Contract Compliance Programs understands that if the agency estimates it will spend sixteen hours reviewing a submission, the contractor will need to invest far more than a single hour preparing it to withstand that level of scrutiny. Thus, contractors should prepare for these information requests now, before the requests are made, as it is unclear how much time a contractor will be given to respond.
Once the information collection is approved under the PRA, agencies will be expected to enforce full compliance with these requirements. Until that time, however, the FAR guidance memo makes clear that agencies may already ask contractors to submit existing records regarding EO 14398 compliance in connection with individual investigations. The guidance memo specifically notes that this includes the type of data that is being requested in the current Department of Justice (DOJ) Civil Investigative Demand letters or in Equal Employment Opportunity Commission (EEOC) charge investigations about DEI.
The deviation serves as interim governmentwide guidance while the FAR Council conducts formal rulemaking to codify the new contract clause in the FAR and to obtain approval for an information collection request under the PRA. The guidance fulfills the EO requirement that the FAR Council act within 60 days to enable immediate implementation. In practice, this deviation is the operative rule until a final FAR regulation is issued. Contractors should expect agencies to begin implementing the guidance immediately.
Berkshire recommends contractors take the following steps:
Engage a cross-functional team to evaluate the impact of this new EO and the FAR deviation on your organization. This is an important new development that should be reviewed at the highest levels of your organization, especially if your organization relies heavily on federal contracts.
Alert your procurement team to the new contract clauses – they should be prepared to hear from contracting officers regarding the clause and should also be prepared to modify any subcontracts as required.
Review DEI-related programs, policies, or processes – this has likely been done previously, when EO 14173 was issued in January 2025. Regardless, any current recruitment and employment programs should be re-evaluated for compliance with the terms of this new EO, particularly considering the definitions of prohibited conduct. This includes a review of programs covered by the EO’s program participation clause. In addition, contractors should review contracting/vendor agreements, and any allocation or deployment of an entity's resources, for compliance concerns – a step some contractors may have missed during earlier reviews.
Review recordkeeping practices – it is unclear how far back these audits might go, so it is a good idea to determine what data you have access to, how easily it can be pulled, and if there are any gaps in the type of data that might be requested to demonstrate your compliance with EO 14398.
Conduct privileged workforce analyses of employment transactions now so that your organization is ready for any audit requests by contracting agencies. Given the type of information that has been requested in EEOC and DOJ investigations into DEI practices, it seems likely that contracting agencies may request submission of employment data as part of their review. All contractors would be wise to understand what their data says before it is submitted.
Recent remarks by DOJ officials make clear that systemically analyzing your employment transactions is key to understanding whether any DEI programs – or other employment-related practices – have been implemented in a manner that cause disparate treatment based on race or ethnicity. That is the standard by which your compliance will be judged – not by whether you simply removed references to DEI in your written policies.
Review and update subcontracting and vendor agreements with the new flow-down language. Contractors should also review these agreements to add any other representations or certifications needed to ensure compliance with EO 14398, such as a “compliance with all laws” statement or a notification provision.
Develop required compliance reporting and monitoring processes to satisfy the new EO obligation to report known or reasonably knowable subcontractor/vendor violations and litigation threats to contracting officers.
Berkshire will continue to monitor FAR Council implementation activity, including the interim information collection PRA request issued this week and any final information collection request proposals.
Along with our parent company Resolution Economics, we offer a variety of services to help your organization comply with these new requirements:
Workforce Analytics including statistical analyses of hiring, promotion, termination and compensation data to evaluate disparate treatment concerns
Customized consulting to develop or refine subcontractor compliance monitoring programs
Mock audits and recordkeeping reviews
Science-based evaluations of employment practices by industrial/organizational psychologists and labor economists to ensure a merit-based approach
Expert assistance in DOJ and EEOC enforcement actions
Independent monitor services for discrimination settlements
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