Seyfarth Synopsis: On 4/20/2026, the Federal Acquisition Regulatory Council issued guidance and Revolutionary Federal Acquisition Regulation (“FAR”) Overhaul revisions to implement Executive Order 14398, dated March 26, 2026. As explained in a previous legal update, the Order directs federal agencies to adopt a contract clause under which contractors must agree not to engage in “racially discriminatory DEI activities” among other requirements. To implement these provisions, the Order further directs the FAR Council to amend the FAR and issue corresponding guidance.
The guidance, issued in the form of a memo to agency procurement officials, contains several significant aspects, which are summarized below.
Agencies must update their FAR Class Deviations. First, the guidance requires federal agencies to update their FAR class deviations for parts 9, 12, 22, and 52, to adopt revisions implementing the Order, by April 27, 2026.
- New 9.406-2(b)(1)(viii) makes failure to comply with the requirements of clause 52.222-90, Addressing DEI Discrimination by Federal Contractors a basis for debarment and new 9.407-2(a)(11) makes failure to comply a basis for suspension.
- Revised 12.205(a)(3) makes clause 52.222-90 a required clause in contracts for commercial products and commercial services.
- New subpart 22.22 contains definitions of “program participation” and “racially discriminatory DEI activities,” and instructs contracting officers to use clause 52.222-90 “in solicitations and contracts, including those for commercial products and commercial services, except those that result in contracts for which the place of delivery or performance is outside the United States.”
- New clause 52.222-90 contains the E.O. 14398 clause, which is entitled Addressing DEI Discrimination by Federal Contractors (APR 2026) (DEVIATION APR 2026).
- Revised clause 52.244-6 adds new clause 52.222-90 as a required flowdown in subcontracts for commercial products or commercial services.
Importantly, because these revisions are being adopted through FAR class deviations, they will take effect immediately, before the Revolutionary FAR Overhaul undergoes notice and comment.
Agencies must use FAR clause 52.222-90 in new solicitations and contracts. Second, beginning April 24, 2026, new FAR 52.222-90 is to be used in new solicitations and resulting contracts valued over the micro-purchase threshold (i.e., over $15,000, subject to the exceptions outlined in FAR 2.101) including those for commercial products and commercial services, for which the place of delivery or performance is in the United States. The guidance clarifies that flow-down requirements extend to subcontracts at any tier.
Agencies must “make every effort to bilaterally modify” existing contracts. Third, by July 24, 2026, new FAR 52.222-90 is to be inserted by bilateral modification in all existing contracts valued over the micro-purchase threshold, including those for commercial products and commercial services, for which the place of delivery or performance is in the United States. If a contractor refuses to sign 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.” For contracts expiring on or before December 31, 2026, modification is not mandatory, but, rather, at the contracting officer’s discretion.
Takeaways and Observations
The guidance adopts a sweeping approach as to which contracts are subject to the new clause, exempting only (a) contracts at or below the micro-purchase threshold and (b) those contracts to be performed or to be delivered outside the United States.
Additionally, the guidance takes a rigid approach to enforcement. The guidance directs contracting officers to consider whether to terminate contracts for convenience if contractors refuse a “bilateral” modification to incorporate the Order’s clause. And while the Order only required that agencies “take appropriate action to suspend and debar contractors or subcontractors” for failure to comply, the FAR Council made failure to comply with the new clause an express cause for debarment or suspension distinct from pre-existing provisions, which already contemplated debarment based on “serious” violations of Government contract or subcontract terms, such as FAR 52.222-90. Now, under the Overhaul version of the FAR, a simple, unintentional failure to comply with FAR 52.222-90, shown by a preponderance of the evidence, can result in debarment. The failure to comply need not be a serious, “willful failure” or “history of failure,” which under FAR 9.406-2 is the typical threshold for debarment based on contract non-compliance. The implication for contractors is that compliance with FAR 52.222-90 is being elevated over most other types of contract compliance.
But, while the guidance provides clarity on what might happen if contractors fail to comply, the guidance provides contractors with little guidance on how actually to comply with the clause, if any. It remains unclear, for example, what constitutes “disparate treatment based on race or ethnicity” or how the “allocation or deployment of an entity’s resources” will be evaluated. Similarly, it is unclear what obligations contractors will have to assess to identify “reasonably knowable violations” of the clause by a subcontractor.
These questions and many others remain. Despite these questions, contractors should be on the watch for the clause in new solicitations and contracts and should anticipate that agencies will seek bilateral modifications of existing contracts. In the meantime, Seyfarth will continue to monitor agency guidance and implementation of this Executive Order.
For questions regarding potential impact or compliance considerations, please contact the authors of this alert or your Seyfarth attorney.
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