New FAR Clause Bans ‘Racially Discriminatory DEI Activities’ by Federal Contractors

You can find the new FAR clause here.

Beginning April 24, all new FAR-based solicitations and resulting contracts must include a commitment by the contractor not to engage in any “racially discriminatory DEI activities,” and agencies “must take every effort” to bilaterally modify existing contracts by July 24. Current contractors thus should carefully review existing policies, practices, and programs related to race and ethnicity as they receive requests to modify existing contracts to include the new clause.

Background

The day after taking office the second time, President Trump issued Executive Order (EO) 14173, entitled “Ending Illegal Discrimination of Restoring Merit-Based Opportunity.” Although primarily focused on curtailing the DEI practices of executive departments and agencies¹, the order required agencies to include in every contract and grant award: (1) a term requiring the contractor or grant recipient to agree that compliance with anti-discrimination law is “material to the government’s payment decisions” for purposes of the civil False Claims Act and (2) a term requiring the contractor or grant recipient to “not operate any programs promoting DEI that violate any applicable anti-discrimination laws.” 

On March 26, President Trump issued EO 14398, entitled “Addressing DEI Discrimination by Federal Contractors.” The March 26 EO directs that agencies must ensure that contracts and “contract-like instruments” include a statement that, in connection with work performed pursuant to the contract, the contractor “will not engage in any racially discriminatory DEI activities.” The EO defines “racially discriminatory DEI activities” as “disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources.” “Program participation” is defined as “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.” The EO also requires agencies to impose additional requirements on contractors (as discussed below).

On April 20, the General Services Administration (GSA) implemented the EO through issuance of revisions to the existing Revolutionary Federal Acquisition Regulation Overhaul (RFO) class deviation. Agencies are in the process of issues agency-specific FAR deviations to adopt these revisions², and contractors have begun to receive contract modification requests. 

New FAR Clause 52.222-90, “Addressing DEI Discrimination by Federal Contractors”

The EO is implemented through new FAR clause 52.222-90, entitled “Addressing DEI Discrimination by Federal Contractors” that is required in contracts valued over $15,000, including contracts for commercial products and commercial services, except when the place of delivery or performance is outside the United States. FAR 52.222-90 provides: 

In connection with the performance of work under this contract, the contractor agrees as follows:

1. The contractor will not engage in any racially discriminatory DEI activities. 
2. The contractor will 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 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 officer and take any appropriate remedial actions directed by the contracting officer.
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 this clause.
6. The contractor recognizes that compliance with the requirements of this clause are [sic] material to the government’s payment decisions for purposes of 31 U.S.C. 3729(b)(4).

(c) The contractor must include the substance of this clause, including this paragraph (c), in subcontracts at any tier, including those for commercial products and commercial services, except those where the place of delivery or performance is outside the United States.

Contractors should note the obligation to report “a subcontractor’s known or reasonably knowable conduct” that may violate FAR 52.222-90. The extent of a contractor’s responsibility to monitor its subcontractors’ compliance with flow-down clauses, if any, is a vexing area of procurement law. The EO agency implementation, and FAR clause itself, do not provide guidance as to the level of due diligence necessary to satisfy the “reasonably knowable conduct” standard — but some due diligence will be necessary.

Contractors should also note that the prohibitions in FAR 52.222-90 relate only to conduct “in connection with the performance of work” under a government contract. Although activities at the corporate level or by teams in indirect cost centers might arguably be “in connection with” government contracts, activities in business divisions working exclusively on non-government contracts would seem to be beyond the scope of FAR 52.222-90.

The penalties for noncompliance include suspension, cancellation, or termination of the contract, as well as debarment, and the EO directs the attorney general to consider whether to pursue or intervene in False Claims Act cases against contractors or subcontractors for noncompliance. For existing contracts, agencies are directed to “make every effort” to secure the contractor’s agreement to modify the contract to include the new clause. If a contractor declines to agree to the modification, the contracting officer is directed to consider terminating that contract for convenience.

Implementation of the New Clause Results in Immediate Lawsuit

On April 17, the Federal Acquisition Regulatory Council issued a guidance memorandum for acquisition and procurement officers regarding implementation of the directives in the EO. The April 17 memorandum states that agencies that issue FAR-based contracts must: 

• Use the new clause beginning April 24. 

• Update their FAR class deviations by April 27. 

Use their best efforts to modify existing contracts by July 24, though for contracts expiring on or before December 31, the contracting officer has discretion as to whether or not to seek modification. On April 20, the National Association of Diversity Officers in Higher Education and several other associations filed a complaint for declaratory and injunctive relief in Maryland federal court, claiming the EO is unconstitutional for several reasons.³ Specifically, the plaintiffs allege the EO violates their rights of free speech and association, it is facially overbroad, it is content-based speech discrimination, it is an unconstitutional condition on the receipt of federal funds, and the False Claims Act provision is ultra vires. The complaint seeks a declaration that the EO is unlawful and unconstitutional and an order prohibiting its implementation. The complaint also asks the court to strike any language implementing the EO that has already been inserted in any contracts and to rescind any agency guidance for implementing the EO. The defendants include President Trump, members of his cabinet, a number of executive departments and agencies, the Federal Acquisition Regulatory Council, and its chair.

As of the date of this alert, no defendant has filed a responsive pleading, and no rulings have been issued.

Takeaways for Contractors

1. Seek legal counsel to determine whether any of your policies, practices, or programs could be deemed “discriminatory DEI activities” and whether those are “in connection with” any work currently or potentially performed under a federal contract.
2. Assess whether you are willing to agree to a new contract that includes the new clause or to agree to modify an existing contract with the new clause.
3. If you agree to a contract that includes the FAR 52.222-90: 
   1. Discontinue programs that impose disparate treatment based on race or ethnicity in the recruitment, employment (e.g., hiring, promotions), contracting (e.g., vendor agreements), program participation, or allocation or deployment of an entity’s resources — to the extent the disparate treatment is in connection with the performance of work under a government contract.
   2. Plan to be able to demonstrate compliance by maintaining necessary books and records.
   3. Update standard subcontractor flow-down terms and conditions to include FAR 52.222-90. 
   4. Develop policies and procedures to conduct due diligence to satisfy the “reasonably knowable” standard, consistent with acceptable risk tolerances. 
   5. Update training materials to include training on the prohibition on racially discriminatory DEI activities. 
   6. Update internal audit plans to include testing for existence of racially discriminatory DEI activities.

For questions or to discuss how this new FAR clause may affect your contracts, please reach out to Kevin R. Pinkney or another member of the Government Contracts group.

[1] Agency DEI practices were further addressed in EO 14151, Ending Radical and Wasteful Government DEI Programs and Preferencing (Jan. 20, 2025).

[2] Of the cabinet departments, as of publication, the US Departments of Agriculture, Commerce, Education, Energy, Housing and Urban Development, Health and Human Services, Labor, Justice, and Transportation had issued such deviations, and the US Departments of Defense, Homeland Security, Interior, State, Treasury, and the VA had not. 

[3] National Association of Diversity Officers in Higher Education v. Donald J. Trump, 8:26-cv-01532, (D. Maryland)