A memorandum dated April 17, 2026, directed to the Chief Acquisition Officers, et. al., by the Executive Order 14398 (EO 14398 or EO) of March 26, 2026, titled “Addressing DEI Discrimination by Federal Contractors” clarifies EO requirements that required a clause to be included in all federal contracts and subcontracts starting on April 25, 2026. EO 14398 specifically establishes that agencies should not do business with contractors that engage in any racially discriminatory diversity, equity, and inclusion (DEI) activities. 

Section 5 of the EO requires The Federal Acquisition Regulatory Council to issue a deviation regarding agency implementation of the contract clause as appropriate and consistent with applicable law and remove any regulations that may be contrary to the EO. The clause will apply to new contracts over $15,000.  According to the Paperwork Reduction Act (PRA)  justification document, fiscal Year 2025 SAM Contract Awards Management data shows that 160,508 contracts were awarded to 34,126 unique vendors meeting the above conditions. The clause is as follows:

“In connection with the performance of work under this contract, [the contractor/appropriate party (contractor)] agrees as follows:

1. The contractor will not engage in any racially discriminatory DEI activities, as defined in section 2 of the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors);

2. The contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the contracting agency pursuant to the Executive Order of March 26, 2026 (Addressing DEI Discrimination by Federal Contractors), for purposes of ascertaining compliance with this clause;

3. In the event of the contractor's or a subcontractor's noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the contractor or subcontractor may be declared ineligible for further Government contracts;

4. The contractor will report any subcontractor's known or reasonably knowable conduct that may violate this clause to the contracting department or agency and take any appropriate remedial actions directed by the contracting department or agency;

5. The contractor will inform the contracting department or agency if a subcontractor sues the contractor and the suit puts at issue, in any way, the validity of this clause; and

6. The contractor recognizes that compliance with the requirements of this clause is material to the Government's payment decisions for purposes of section 3729(b)(4) of title 31, United States Code (False Claims Act).”.

This clause is also required in current contracts as well.  Per the memo:

“Insert the clause at FAR 52.222-90 in all existing contracts (i.e., definitive contracts and indefinite-delivery contracts) valued over the micro-purchase threshold, including those for commercial products and commercial services, and for which the place of delivery or performance is in the United States. In accordance with FAR 1.107(d) (May 2, 2025, deviation), contracting officers must make every effort to bilaterally modify existing contracts by July 24, 2026. If a contractor refuses to agree to a bilateral modification, the contracting officer should consider whether, absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience. Modification of contracts with a final expiration no later than December 31, 2026, is at contracting officer discretion.”

Federal contractors will need to do the same with their existing subcontracts.  The hammer to enforce inclusion for the primary and subcontracts will be debarment or loss of contract(s) – a very heavy-handed approach. 

The PRA expects 6,825 contractor audits per year across approximately 430 federal agencies, with noncompliance carrying consequences that include contract termination, debarment, and False Claims Act exposure.  The justification document states that it will not take much time to complete an audit.

The emergency information collection request (ICR) would authorize government agencies to collect the following categories of information in connection with clause compliance requirements:

“i. Par (b)(2) - Furnish all information and reports, including providing access to books, records, and accounts, as required by the Contracting Officer, for purposes of ascertaining compliance with the clause.

ii. Par (b)(4) - The Contractor will report any subcontractor's known or reasonably knowable conduct that may violate this clause to the Contracting Officer and take any appropriate remedial actions directed by the Contracting Officer.

iii. Par (b)(5) - The Contractor will inform the Contracting Officer if a subcontractor sues the Contractor and the suit puts at issue, in any way, the validity of the clause.”

It is likely the requests will be similar to the EEOC’s or DOJ’s information requests they developed for investigating “illegal” DEI. The emergency authorization would provide a maximum period of six months for the proposed ICR. In the interim, the FAR Council would prepare a Federal Register notice to support a permanent information collection requirement. However, there is no indication who will conduct the audits or how contractors will be selected or what they will be asking. 

As noted in our previous article on April 1, this EO establishes responsibility and liability of the compliance officer and contractor if they conduct “illegal” DEI and/or fail to monitor their subcontractors.  The compliance approach is similar to the approach the Obama administration attempted to implement with its Blacklisting rule, which was knocked out by federal courts. 

In other words, this approach is likely the future of HR compliance, leading to more responsibility and liability of HR as a compliance lead.  Down the road, depending on administrations, various other “laws” such as wage and hour, OSHA, etc. could be added to the plate.  The Blacklisting rule was knocked out because of its overreach and vagueness.  If a Democratic administration comes along, they will likely knock out the “illegal DEI” and add in other laws.