On October 28, 2026, the plaintiffs in National Association of Diversity Officers in Higher Education v. Trump, No. 8:26-cv-01532 (D. Md.) (“NADOHE case”), filed a notice voluntarily dismissing without prejudice their facial challenge to Executive Order (“EO” or the “Order”) 14398, Addressing DEI Discrimination by Federal Contractors, and its Federal Acquisition Regulation (“FAR”) implementation. The notice followed Judge Adam B. Abelson’s October 14 opinion denying a preliminary injunction. Although the plaintiffs did not obtain an injunction, they secured a narrowing construction every federal contractor should understand.
What EO 14398 Requires
Issued March 26, 2026, EO 14398 directs agencies, “to the extent permitted by law,” to include a clause in contracts and contract-like instruments, including subcontracts and lower-tier subcontracts. The FAR Council’s April 17, 2026, guidance directed agencies to implement the clause, through class deviations, as FAR 52.222-90. “[I]n connection with the performance of work under this contract,” the contractor must:
- not engage in “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”;
- furnish information and reports, including access to books, records, and accounts, as the contracting agency requires;
- report any subcontractor’s “known or reasonably knowable conduct that may violate this clause”; and
- recognize that compliance is material to the government’s payment decisions for purposes of the False Claims Act (“FCA”).
Why the Court Denied the Injunction
Judge Abelson acknowledged that “racially discriminatory DEI activities,” standing alone, is “far from self-explanatory.” But the Order defines the phrase through “disparate treatment,” which the court called “a common legal term essentially synonymous with unlawful intentional discrimination.” The Order therefore “only prohibits contractors from engaging in conduct that is already prohibited by federal law,” so the plaintiffs had not shown a likelihood of success on their overbreadth claim. The Court found the vagueness claim unlikely to succeed because the Order “expressly applies only to work the contractor is performing for the government pursuant to the contract in which the model language appears.” As to the FAR guidance, the Court held that, because its requirements are substantially identical to the Order’s, the plaintiffs had shown neither a likelihood of success on their claim that the guidance is unconstitutional nor irreparable harm attributable to it. The Court did not decide the plaintiffs’ remaining Administrative Procedure Act (“APA”) claims.
The Plaintiffs’ Stated Reasons for Dismissal
The plaintiffs’ notice cites the Court’s conclusion that the Order merely “mandates compliance with existing laws,” together with the government’s concessions at argument: (1) acknowledging “a correlation between race and ethnicity and medical condition” is not intentional discrimination; (2) “talking about historical examples of racial disparities” is not prohibited; and (3) an enforcement action retaliating against protected speech on matters of public concern, including historic racial disparities, would raise “First Amendment problems[.]” The notice also highlights the Court’s observation, which government counsel acknowledged, that an enforcement action “for conduct or speech outside the contract . . . may well be unconstitutional retaliation.”
FAR 52.222-90 Survives, With a Narrower Scope
The plaintiffs’ notice leaves FAR 52.222-90 intact and operable, but its scope is narrower than it initially appeared. As Judge Abelson construed it, the clause reaches only intentional discrimination based on race or ethnicity, conduct the Court found federal antidiscrimination law (including Title VII and 42 U.S.C. § 1981) already prohibits.
The Materiality Acknowledgment Is Now Operative, but Its Force Is Doubtful
FAR 52.222-90 still declares compliance material. Paragraph (b)(6) of the FAR Council’s model text provides: “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).” The FAR Council directed agencies to use the clause in new solicitations and contracts beginning April 24, 2026, and to make every effort to bilaterally modify existing contracts by July 24, 2026. In the NADOHE case, the government had stipulated to delay initiating related FCA enforcement actions only until August 7, 2026, and the Order directs the Attorney General to “consider whether to bring actions under the False Claims Act against any contractors or subcontractors that violate the clause described in section 3 of this order.”
Courts may be receptive to treating the acknowledgment as relevant but not dispositive in FCA litigation under the clause. In County of King v. Turner, No. 25-3664 (9th Cir. Aug. 25, 2026), the Ninth Circuit affirmed “in full” a preliminary injunction against the U.S. Department of Housing and Urban Development and U.S. Department of Transportation grant conditions that required recipients to agree that their compliance with federal antidiscrimination laws “is material to the U.S. Government’s payment decisions” for FCA purposes. Writing for the majority of a divided panel, Judge McKeown explained that requiring recipients “to agree in advance and in the abstract that a statutory violation is material” would “bolster the case for FCA liability,” and that “the FCA defines ‘material’ to require an objective inquiry into what has a ‘tendency to influence’ the government, not what the government ‘deem[s]’ important.” “[I]t is for the courts,” the majority added, “to interpret that provision and to apply the definition to the facts of a particular case.” The majority also rejected the government’s argument that the acknowledgment is merely notice, warning that “if the government enters litigation with such a forceful precertification in hand, it would need to do less to establish materiality than it would without one.” Judge Bumatay, who concurred in part and dissented in part, and saw “no reason to enjoin these conditions,” nonetheless emphasized that recipients “could still contest materiality” because, under Escobar, “the Government’s decision to expressly identify a provision as a condition of payment is relevant, but not automatically dispositive.”
County of King addressed grant conditions tied to Title VI, not a FAR clause, so its holding on agency authority does not apply directly. That said, its materiality reasoning applies with equal force to FAR 52.222-90, and the government has conceded the core point. Defending EO 14398 in Maryland v. Hegseth, No. 1:26-cv-02322 (D. Md.), the government answered the states’ argument that “[m]erely labeling a clause ‘material’ does not make it so.” The government’s September 28, 2026, brief responded: “True enough. But the government would still have to prove materiality in any False Claims Act action[.]” The government maintained that its statements about what is important are “clearly relevant.” Contractors should therefore treat the acknowledgment as contestable, not conclusive, and should preserve evidence of what agencies knew about their programs and whether the agencies continued to make payments.
Preparing for an As-Applied Challenge
The Court explained that if the government brings FCA actions or cancels contracts based on DEI-related activity that is not disparate treatment, targets “could bring an as-applied challenge” and “point to the government’s numerous representations in this case and in NADOHE I,” the Fourth Circuit’s 2026 decision rejecting a facial challenge to EO 14173’s certification provision. We recommend that contractors:
- Audit fellowships, mentoring programs, supplier initiatives, and employee groups to confirm eligibility does not turn on race or ethnicity.
- Separate contract performance from corporate speech, research, and community activity outside the contract, and maintain records documenting that separation.