DoD Seeks “Unprecedented Level of Visibility” into the Supply Chain Under Newly Proposed Regulations

Michael Joseph Montalbano ●

The Department of Defense (“DoD”) released a proposed rule on May 7, 2026, that would significantly expand Foreign Ownership, Control, and Influence (“FOCI”) and beneficial ownership disclosure requirements beyond cleared contractors to a much broader segment of the Defense Industrial Base. Soon, any contractor or subcontractor with a DoD contract exceeding five million dollars will need to report its FOCI status in the National Industrial Security System (“NISS”).

Who Is Covered Under the Proposed Rule

The proposed rule would apply to any existing or prospective contractor or subcontractor, at any tier, holding a DoD contract valued in excess of five million dollars—regardless of whether classified information is involved. The reporting and review framework will be established under a new DFARS Part 240, “Information Security and Supply Chain Security.” The DoD does not mince words. The rule is designed to provide an “unprecedented level of visibility” into the ownership structures of its partners and to prevent foreign adversaries from accessing sensitive unclassified information and critical technologies.

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Is This the End of Cost-Type Contracting? What Federal Contractors Should Know About a New Executive Order Making Fixed-Price Contracts the “Default”

Stephanie M. Harden, Dominique L. Casimir, Elizabeth N. Jochum, and Sara N. Gerber ●

On April 30, 2026, President Trump signed another executive order (“EO”) that may significantly impact how the government buys goods and services. The target: cost-reimbursement contracts, which let contractors bill the government for their “allowable, allocable, and reasonable” costs incurred, plus some pre-established or earnable profit. According to the EO, in Fiscal Year (“FY”) 2024, the government spent roughly $120 billion on cost-reimbursement consulting contracts. The EO seeks to significantly reduce that figure by making fixed-price contracts the default for federal procurement—meaning prices are locked in up front and contractors, not taxpayers, bear the risk of overruns.

What does the executive order require agencies to do?

Agencies that want to use structures other than fixed-price will begin to face real hurdles as agencies implement the EO’s directives. Nearly every exception from the “default” fixed-price model will require the contracting officer to provide written justification not just to someone senior within the contracting authority, but to the head of the relevant agency, and bigger-ticket exceptions—at thresholds of $100 million (Department of Defense (“DoD”)), $35 million (National Aeronautics and Space Administration), $25 million (Department of Homeland Security), and $10 million (everyone else)—need the agency head’s sign-off, not just notification.

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New Suit Seeks to Enjoin EO 14398: Implications for Government Contractors

Dominique L. Casimir and Shane M. Hannon ●

Less than one month after the issuance of Executive Order 14398 (“EO 14398”), “Addressing DEI Discrimination by Federal Contractors,” a coalition of academic and contractor organizations has filed a lawsuit in federal court seeking to have it enjoined. See National Association of Diversity Officers in Higher Education v. Trump, No. 8:26-cv-01532 (D. Md. filed Apr. 20, 2026). Here is what government contractors need to know.

As we have previously covered, EO 14398 is a critical new development for government contractors. It introduces a new concept of “racially discriminatory DEI activities,” defined 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.”

The plaintiff organizations are challenging EO 14398 on three grounds.

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60-Second Sustains: Effective Communication Strategies, LLC

Elizabeth N. Jochum and David L. Bodner ●

Protest of: Effective Communication Strategies, LLC
Government Accountability Office (“GAO”)
B-423993; B-423993.2

  • The challenged procurement was a commercial item, simplified acquisition for microwaves and dehumidfiers.
  • The Army Corps of Engineers issued numerous solicitation amendments, including several issued after initial proposals were submitted, requiring offerors to revise and resubmit their proposals.
  • Effective Communication Strategies (“ECS”) challenged one of these amendments, which added a requirement for a refrigerator that met outlined technical specifications and complied with the Trade Agreements Act.
  • The relevant amendment was issued in the morning, with revised quotations due the same day at 5:00 p.m.
  • The Agency and ECS then engaged in several rounds of communications and further solicitation amendments regarding the refrigerator requirements, with the Agency imposing extremely short response deadlines—always less than a day and sometimes less than an hour.
  • GAO found that the Agency had failed to afford offerors a reasonable opportunity to respond to the Agency’s evolving requirements, both in response to the amendment and during communications.
  • GAO recommended the Agency amend the solicitation and allow for a reasonable response time.

What Does IBM’s $17 Million FCA Settlement Portend for Government Contractors Wrestling with Compliance?

Jennifer A. Short, Dominique L. Casimir, Brooke T. Iley ●

Jennifer A. Short headshot image

On Friday, April 10, 2026, the Department of Justice (“DOJ”) announced a $17 million False Claims Act (“FCA”) settlement with International Business Machines (“IBM”), based on the company’s alleged violations of federal anti-discrimination laws. The settlement is the first under the DOJ’s Civil Rights Fraud Initiative, created last May with the objective of investigating and prosecuting “illegal DEI” practices, primarily through an FCA lens. Coupled with a new Executive Order—issued on March 26—that imposes contract prohibitions on “racially discriminatory DEI activities” in federal government contracts and subcontracts, the IBM settlement signals an escalation in the government’s focus on DEI programs and employment policies.

The DOJ Press Release and Settlement Agreement

The Alleged “Covered Conduct” Identifies Specific Problematic Practices. 

DOJ alleged that IBM improperly made employment decisions based on protected characteristics through specific programs and actions, described as the “Covered Conduct” for purposes of the settlement agreement:

  • Compensation Incentives: A “diversity modifier” linking bonus compensation to demographic targets
  • Hiring and Promotion Criteria: Basing interview eligibility or prioritization on race, sex, or national origin
  • Demographic Goals for Business Units: Developing race and gender targets tied to employment decisions
  • Limited-Access Programs: Limiting training, mentoring, and leadership development to employees meeting specific demographic criteria, such as minorities.

To read the full alert, please visit our website.

An Overview of the New DEI Executive Order: Scope and Limitations

Dominique L. Casimir ●

On March 26, 2026, President Trump signed Executive Order 14398 (“EO 14398”) titled Addressing DEI Discrimination by Federal Contractors, taking aim at the diversity, equity, and inclusion (“DEI”) practices of federal contractors. EO 14398 ventures into territory already covered by the President’s prior DEI-related executive orders (“EOs”), in particular EO 14173, which requires a contractor certification regarding “illegal DEI,” but goes further. It directs federal agencies to include a mandatory contract clause prohibiting “racially discriminatory DEI activities” in all covered contracts and subcontracts, requires prime contractors to police the DEI practices of subcontractors at every tier, imposes new reporting requirements, and threatens a panoply of consequences for noncompliance, including contract termination, False Claims Act (“FCA”) exposure, and suspension and debarment. Like EO 14173, it also requires the government to “identify economic sectors that pose a particular risk of entities engaging in racially discriminatory DEI,” signaling the Administration’s ongoing desire to stamp out DEI. The accompanying White House Fact Sheet declares that the EO will ensure “merit-based and efficient contracting and employment.”

EO 14398 is likely to be challenged in court on a variety of theories, similar to the ongoing wave of EO 14173 litigation. Contractors will almost certainly question the EO’s scope and the ambiguity in its key terminology, as well as its enforcement assumptions.

To read the full alert, please visit our website.

Living With the EO 14173 Certification Requirement for Federal Contractors, One Year In

Dominique L. Casimir and Sara N. Gerber●

Throughout 2025, the Trump administration communicated that it considered Diversity, Equity, and Inclusion (“DEI”) programs legally suspect. Executive Order 14173 (“EO” or “EO 14173”) declared that DEI programs “violate the text and spirit of our longstanding federal civil-rights laws” and directed agencies to “combat illegal private-sector DEI preferences, mandates, policies, programs, and activities.” The EO invoked the False Claims Act (“FCA”) to signal substantial financial exposure for federal contractors, and the Department of Justice (“DOJ”) established a Civil Rights Fraud Initiative to pursue claims. Throughout 2025, federal agencies presented government contractors with EO 14173 certifications, requiring contractors to agree that compliance with federal antidiscrimination laws is material to the government’s payment decisions under the FCA and attesting that any DEI programs do not violate federal antidiscrimination law. Many companies responded by undertaking privileged reviews of their DEI programs and, in some cases, rolling them back.

More recently, however, DOJ has vocally affirmed that DEI programs can in fact be lawful. At the Federal Bar Association’s FCA conference on February 19, 2026, Deputy Assistant Attorney General Brenna Jenny from DOJ’s Civil Division stated plainly: “Let me start by making absolutely clear, DOJ Civil Fraud is not investigating companies for having a DEI program.” She emphasized that companies “can engage in discrimination with or without DEI programs” and “can also operate a DEI program without it being discriminatory.” Instead, she explained that DOJ’s investigations focus on “companies that implemented programs and practices that pressured supervisors and management to make hiring and promotion decisions based on race or sex,” including setting and tracking demographic goals, tying executive compensation to diversity metrics, and requiring employees to set DEI-related goals that affect compensation and promotion. In Fourth Circuit litigation, DOJ conceded that there is “‘absolutely’ DEI activity that falls comfortably within the confines of the law.” Nat’l Ass’n of Diversity Officers in Higher Educ. v. Trump, No. 25-1189, slip op. at 26 (4th Cir. Feb. 6, 2026) (Diaz, C.J., concurring).

To read the full alert, please visit our website.

Decoupling from Chinese Chips: Unpacking the Proposed Section 5949 Supply Chain Ban

Robyn N. Burrows and Samarth Barot ●

Samarth Barot headshot image

In December 2022, we discussed the passage of Section 5949 of the Fiscal Year 2023 National Defense Authorization Act (“NDAA”), which introduced prohibitions on certain semiconductor products and services from designated Chinese manufacturers. At the time, the statute’s scope remained unclear, particularly regarding whether the restrictions would apply only to federal sales or extend to contractor “use” of covered technologies, similar to Section 889’s Part B prohibition. On February 17, 2026, the Federal Acquisition Regulatory (“FAR”) Council released a proposed rule that provides important clarity on these questions and establishes a compliance framework for government contractors.

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SBA Continues to Demand Unwarranted Repayment from Shuttered Venue Operators Grant Program Recipients

Dominique L. Casimir, Shane A. Pennington, Elizabeth N. Jochum, and Amanda C. DeLaPerriere ●

The Small Business Administration (“SBA”) began demanding repayment of grant funds distributed to more than 600 businesses under the COVID-era Shuttered Venue Operators Grant (“SVOG”) Program in June 2025. The purpose of the SVOG Program was to provide emergency assistance to eligible businesses that organize, promote, produce, manage, or host live performing arts events. To be eligible for a grant under the SVOG Program, grantees had to submit extensive documentation satisfying the eligibility criteria under 15 U.S.C. § 9009a. Years later, well after the SBA determined that applicants were eligible for grant funds, and well after the approved grantees spent their grant funds as required under the terms of the grants themselves, the SBA is reversing en masse hundreds of it its own prior eligibility determinations and demanding repayment of grant funds in full, with potentially catastrophic effects for grantees. 

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Understanding the Potential Anthropic Ban: Key Considerations for Federal Contractors

Robyn N. Burrows and Merle M. DeLancey, Jr. ●

On February 27, 2026, President Trump posted on Truth Social directing all federal agencies to “immediately cease” use of Anthropic’s artificial intelligence (“AI”) technology. Simultaneously, Defense Secretary Pete Hegseth announced on X he was designating the company a “supply chain risk to national security” and prohibiting federal contractors from doing any business with Anthropic. This unprecedented action against a domestic company has significant supply chain implications for government contractors. Below, we summarize what led to this development, the legal authorities pertaining to supply chain bans, and practical guidance for contractors navigating this evolving situation.

1. Background: From Contract Dispute to Presidential Directive

The conflict between Anthropic and the federal government emerged from a contract dispute over the company’s AI usage restrictions. Anthropic, which holds a $200 million Pentagon contract and was the first frontier AI company to deploy its models on classified government networks, maintained two “red lines” in its contract negotiations: it refused to allow its AI model, Claude, to be used for mass domestic surveillance of Americans or in fully autonomous weapons systems.

The Pentagon demanded that Anthropic agree to “all lawful use” of its technology without Anthropic’s proposed restrictions. Anthropic’s refusal led President Trump and Secretary Hegseth to announce their decisions against Anthropic on social media. Secretary Hegseth stated that Anthropic would be “immediately” designated a supply chain risk, prohibiting any federal contractor working with the military from “any commercial activity with Anthropic.”

Anthropic has announced it will challenge the supply chain risk designation in court, calling it “legally unsound.”

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