Federal Contractor Advisory: Executive Order 14398 Compliance Requirements and Implementation Guide

New Federal Contract Clause Requirements

Immediate Impact: Beginning April 24, 2026, all new solicitations and resulting federal contracts, subcontracts, and contract-like instruments valued over the micro-purchase threshold, and for which the place of delivery or performance is in the United States, must include FAR clause 52.222-90, Addressing DEI Discrimination by Federal Contractors. That clause prohibits "racially discriminatory DEI activities," defined as disparate treatment based on race or ethnicity in recruiting, hiring, promotions, contracting, vendor agreements, program participation, and resource allocation. Agencies must also amend any open solicitations to incorporate the clause.

Contractor Obligations Under FAR 52.222-90: The clause imposes several specific obligations on contractors during contract performance, which are: (1) not engaging in any racially discriminatory DEI activities; (2) furnishing all information and reports, including access to books, records, and accounts, as required by the Contracting Officer for compliance purposes; (3) reporting any subcontractor's known or reasonably knowable conduct that may violate the clause to the Contracting Officer and taking appropriate remedial actions; (4) informing the Contracting Officer if a subcontractor sues the contractor and the suit puts at issue the validity of the clause; and (5) acknowledging that compliance is material to the Government's payment decisions for False Claims Act purposes (31 U.S.C. 3729(b)(4)). These obligations apply throughout the contract lifecycle, not just at award.

Contract Modifications: Existing contracts should be modified to include the new clause, which is located verbatim within EO 14398. Agencies may seek bilateral modifications of existing contracts or may issue unilateral modifications. Contractors should be aware that if a bilateral modification is not reached, under EO 14398 and FAR Council Guidance, agencies retain the right to terminate the contract for the Government's convenience.

Compliance and Documentation Requirements

Enhanced Record-Keeping: Given the EO's designation of compliance as "material" for False Claims Act purposes under 31 U.S.C. 3729(b)(4), contractors must implement robust documentation systems to support their obligations under FAR 52.222-90. This includes maintaining detailed records of hiring decisions, promotion processes, training programs, and vendor selection criteria. Note: The FAR Council is currently seeking OMB clearance under the Paperwork Reduction Act for the full information-collection requirements of FAR 52.222-90 (routine reporting, books, records, and account access).

Internal Controls: Distinguishing between prohibited and permissible activities under the EO requires careful legal analysis. Please consult Katbi Law PC for advice on developing policies and procedures appropriate to your organization.

Subcontractor Management: Prime contractors must flow down FAR 52.222-90 to subcontracts at any tier, including those for commercial products and commercial services, for which the place of delivery or performance is in the United States. Beyond flowdown, prime contractors bear affirmative duties under the clause: they must report any subcontractor's known or reasonably knowable conduct that may violate the clause to the Contracting Officer, take appropriate remedial actions as directed, and notify the Contracting Officer if a subcontractor brings suit that puts the validity of the clause at issue. Contact Katbi Law PC for guidance on subcontractor due diligence, flowdown strategies, and managing these reporting obligations.

Risk Management and Enforcement Consequences

Severe Penalties: Non-compliance may result in contract cancellation, termination, suspension, debarment, and False Claims Act enforcement. The EO specifically directs agencies to pursue suspension and debarment actions against non-compliant contractors.

Whistleblower Risk and DOJ Enforcement: The EO's emphasis on False Claims Act enforcement increases qui tam lawsuit risk. False Claims Act violations can result in treble damages and significant per-claim civil penalties. Critically, the EO separately directs the Attorney General, in consultation with relevant contracting agencies, to consider bringing FCA actions directly against contractors or subcontractors that violate FAR 52.222-90, and to ensure prompt review of private qui tam suits under 31 U.S.C. 3730(b)(1), including a directive to render a decision on whether to proceed with a qui tam action within the 60-day review period under 31 U.S.C. 3730(b)(2) to the maximum extent practicable. Contractors should implement robust internal reporting mechanisms and ensure all personnel understand and adhere to the new requirements to minimize exposure.

Mitigation Strategies: A thorough review of existing programs in light of the EO's requirements is strongly recommended. Please contact Katbi Law PC for experienced guidance in federal contracting compliance.

How Katbi Law PC Can Help

Katbi Law PC advises construction industry participants navigating EO 14398 compliance, including:

• Contract updates and clause implementation

• Subcontractor risk management

• Compliance audits and policy review

• False Claims Act risk mitigation

We are available to provide tailored legal advice and assist with all aspects of EO 14398 compliance. Every contractor's situation is different, and the implications of Executive Order 14398 will vary depending on your specific contracts, programs, and organizational practices. Please contact us to discuss your organization's needs and next steps.