Understanding EO 14398
Addressing DEI Discrimination by Federal Contractors
Executive Order 14398 requires federal contractors and subcontractors to avoid racially discriminatory DEI activities and prove decisions are merit‑based and race‑neutral, so understanding it is critical to protecting your contracts and subcontractor relationships.
EO 14398 Highlights
01
Defines the Policy Focus
Clarifies how the Executive Order defines “racially discriminatory DEI activities,” grounding the term in disparate treatment concepts under existing civil rights law. This section establishes policy framing, not new legal standards.
02
Directs Future Contractual Implementation
Instructs federal agencies to take steps toward incorporating a standardized contract clause into covered contracts and contract‑like instruments, subject to legal authority and implementation processes. The clause text is provided, but obligations arise only upon contract incorporation.
03
Signals Flow‑Down Responsibility
Indicates that, once incorporated, the contract clause is intended to flow down to subcontractors, with prime contractors maintaining responsibility for appropriate contractual pass‑through and reasonable oversight—consistent with standard federal contracting practices.
04
Links Compliance to Contract Administration
States that compliance with the clause, once incorporated, is intended to be material to contract performance and payment considerations. While enforcement and FCA materiality are ultimately determined through established legal standards, the language signals how agencies may approach contract administration.
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Multi Agency Enforcement Authority
The Risks of Non-Compliance are Immediate
If your contract is found non-compliant, your organization faces severe penalties tied to the new mandatory clause and the accuracy of contractor and subcontractor DEI certifications.
- Contract Termination: Your existing federal contracts can be suspended, canceled, or terminated.
- False Claims Act Liability: Prime contractors are now explicitly accountable for their subcontractors. A false claim passed up the chain creates direct liability for the prime, with exposure of up to $28,619 per False Claims Act violation.
- Suspension and Debarment: You risk losing your ability to bid on any future federal projects.
Disparate Treatment and Contract Clause
What is EO 14398?
EO 14398 is a 2026 executive order that prohibits racially discriminatory DEI activities and disparate treatment by federal contractors and subcontractors in employment, contracting, and program participation.
It also requires agencies to insert a new mandatory contract clause into covered contracts and subcontracts, giving the government audit and information‑request rights and requiring contractors to certify they do not engage in racially discriminatory DEI activities in:
- Recruitment
- Hiring
- Promotion
- Other employment practices
In addition:
Federal contractor employers must ensure access to training, mentoring, clubs (ERGs), associations, and similar opportunities to all employees regardless of race or ethnicity.
Federal agencies will now expect both prime and subcontractors to empirically demonstrate that their employment practices are neutral, job-related, and applied consistently across the organization once the new clause is in place. Contract clauses will begin to appear in covered contracts and contract‑like instruments by April 25, 2026, and prime contractors are responsible for their subcontractors’ compliance.
EO 14398 Checklist
Protect Your Contracts
To navigate EO 14398 confidently, federal contractors must establish clear governance. Here is what you need to do now:
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Audit your current programs and policies
Including hiring practices, employment programs, employee groups, and DEI initiatives to ensure eligibility criteria are race‑neutral, participation is inclusive, and no benefits are restricted by race or ethnicity.
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Run disparate treatment analysis
Ensure your employment decisions are merit‑based, neutral, and job‑related.
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Establish subcontractor oversight
Monitor and implement a compliance process for your supply chain, like a survey to assess subcontractor risks.
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Prepare documentation
Prepare documentation for both your organization and your subcontractors that clearly show non‑discriminatory intent, race‑neutral eligibility criteria, and outcomes, in case of an agency information request or audit.
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Data-driven decisions
Compliance data supports smarter and more strategic planning, leading to more confident decisions.
Key Timeline of Changes
From Mandates to Merit: Understanding the New Federal Labor Landscape
The federal government has significantly shifted its approach to workplace diversity, moving toward a strict focus on anti-discrimination law compliance, merit-based employment, and veteran/disability compliance.
January 21, 2025
EO 14173 was issued, rescinding EO 11246 which required affirmative action plans (AAPs) for women and minorities for federal contractors. It required a contractual term that all parties are in compliance with all federal anti-discrimination laws. No further guidance has been issued on this certification as of April 2026.
It is important to note that even though affirmative action plans for women and minorities were rescinded, AAPs for individuals with disabilities (Section 503) and veterans (VEVRAA) are still required.
April 23, 2025
EO 14281 was issued and instructed agencies to deprioritize and cease pursuing disparate impact claims.
July 29, 2025
The Attorney General issued guidance on “unlawful DEI” and best practices for federal funding recipients to ensure they are not conducting it. The items in the memo are not mandatory, but rather best practices.
February 26, 2026
The EEOC issued a letter for Fortune 500 leadership regarding unlawful DEI-related discrimination.
March 20, 2026
EO 14398 was issued, further doubling down on this administration's goal to end all diversity, equity, and inclusion programs.
EO 14398 FAQ’s
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What is Executive Order 14398?
Executive Order 14398, Addressing DEI Discrimination by Federal Contractors, focuses on prohibiting racially discriminatory DEI activities, specifically racial disparate treatment in recruitment, hiring, promotion, and employment practices.
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Does this Executive Order eliminate DEI or diversity programs?
No. The Executive Order does not prohibit lawful diversity initiatives or standard nondiscrimination compliance practices.
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Does EO 14398 cover all forms of discrimination?
No. EO 14398 specifically targets racially discriminatory DEI activities and disparate treatment based on race or ethnicity in employment, contracting, and program participation. Existing federal laws still govern discrimination based on sex, national origin, religion, age, disability, and other protected characteristics.
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How does this Executive Order affect federal contractors?
Federal contractors will be required to implement a contract clause for their subcontractors ensuring that they do not engage in any racially discriminatory DEI activities. Prime contractors are responsible for their subcontractor’s compliance and will incur the risk if subs falsely certify. It also builds on earlier requirements around “illegal DEI” certifications by adding a detailed clause, audit rights, and explicit False Claims Act risk.
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Is nondiscrimination analysis or reporting still allowed?
Yes — and it is increasingly important. Data‑driven reporting on employment practices is one of the best ways for contractors to demonstrate compliance with Title VII and other civil rights requirements.
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What role does reporting play under the new Executive Order?
Contracting agencies can request information and reports related to the EOs compliance at any time. Reporting provides evidence that your programs and employment decisions are lawful and in compliance with EO 14398.
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We have active DEI programs—do we need to pause or dismantle them?
No. Federal contractors or subcontractors do not need to pause or dismantle DEI programs that are lawful, race‑neutral in application, and aligned with nondiscrimination principles.
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What should contractors with existing DEI initiatives be reviewing right now?
Contractors should conduct a risk‑informed review, not a wholesale overhaul. Key areas to review include:
- How eligibility criteria for programs are defined and applied
- Whether participation is voluntary and inclusive
- Whether employment decisions remain based on objective, job‑related factors
- Whether documentation clearly supports nondiscriminatory intent and outcomes
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How can OutSolve help?
We help federal contractors and subcontractors:
- Understand workforce outcomes through structured reporting
- Support nondiscrimination compliance with objective data
- Prepare for future guidance without unnecessary disruption
Ready to safeguard your federal contracts?
Contact our compliance experts today to review your current policies and ensure full alignment with EO 14398 requirements.
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