Compliance with EO 14398/FAR Council Requirements
New Requirements and Risks for Federal Contractors
On March 26, 2026, President Trump issued Executive Order 14398, entitled Addressing DEI Discrimination by Federal Contractors, which is intended to ensure that federal contractors do not engage in “racially discriminatory DEI practices.” EO 14398 requires every federal agency to insert clauses into all their contracts, pursuant to which contractors agree that they will not engage in such practices – at the risk of debarment as well as potential liability under the Federal False Claims Act.
Less than one month later, the Federal Acquisition Regulatory Council (FAR Council) issued a “deviation memorandum” to immediately implement the provisions of EO 14398 through a new Federal Acquisition Regulation (FAR) clause, to be included in every federal contract above the micro-purchase threshold of $15,000 beginning on April 24, 2026. Among other things, this clause requires the contractor to
Not engage in any “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; and
Agree that compliance with the above requirement is “material” to payment decisions for the contract for purposes of the False Claims Act (FCA), a statute that allows both the government and individual “whistleblowers” to bring suit if a against a contractor.
The new clause also identifies failure to comply as a specific basis for cancelation or suspension of contracts as well as debarment of the contractor.
The bottom line: with the addition of this new FAR-required contract clause, federal contractors now face greatly increased risk if they are found to be engaged in “racially discriminatory DEI activities.
How We Can Help
Resolution Economics has a long history of doing high level analysis in the arena of non-discrimination, both in class action litigation, where our firm serves in expert witness capacity, and in proactive analyses on behalf of our clients. As experts in this complex area, we are uniquely situated to provide high impact and highly relevant non-discrimination analyses to help a company show that its employment decisions reflect no illegal DEI programs.
Our Assessments
Because Federal anti-discrimination laws require that employment decisions be based on job-related and not demographic factors, no analysis should rely merely on a headcount exercise. To meet the standard for analysis conducted when labor economists study allegations of discrimination in Title VII settings, each of the analyses outlined here considers job-related factors. We can tailor these analyses to each company’s specific relevant decision-making factors. Thus, establishment level analysis may be appropriate for some companies, but not for others. Similarly, breaking out by detailed job group will be driven by company specifics. The only way to separate job-related factors is to control in a statistical model for the job-related factors of each employee, in order to determine if there is a statistically significant relationship between any demographic characteristic and an employment practice.
Note that an analysis of “non-discrimination” is also essentially an analysis of “illegal DEI.” This is because if an analysis were to find a statistically significant surplus of hires or promotions of one race or ethnicity after taking into account job related factors, such a finding would be consistent with the inference that demographic preferences were applied. If a company wishes to ascertain that it is not applying preferences in its employment decisions, such an analysis could be essential.
The non-discrimination assessments we offer will go a long way to assure federal contractors that they are not engaged in the “racially discriminatory DEI practices” targeted by EO 14398.
Our Assessments
Our non-discrimination assessments can cover any or all of the following employment practices, at the Company’s option, with tables and charts summarizing the findings for each demographic grouping
Analysis of Recruiting Practices
- Comparison of applicant demographic composition to relevant labor market
Analysis of Hiring Practices
- Comparison of applicant demographic composition to job offers
- Comparison of job offers to ultimate hires
- Additional analyses where needed/desired
Analysis of Promotion Practices
- Analyses of both non-competitive (‘in-line”) promotions and competitive promotions
- Our I/O team can conduct validation analysis if desired
Analysis of Pay Practices
- Conduct multiple regression analysis of pay by relevant groupings
Analysis of Termination Practices
- Perform analysis from similarly situated employee groupings and compare actual terminations to a demographically neutral hypothesized number of terminations.
