Don’t Get Burned This Summer: Federal Contractors Have Until July 24 to Comply With the New “Addressing DEI Discrimination” FAR Clause but State Contracts Make for a Complicated Season

While most people are counting down to summer vacation, federal contractors have a different kind of deadline on the calendar. There’s no slowdown on compliance this season. July 24, 2026 is the date by which contracting officers must make every effort to bilaterally modify existing contracts to incorporate FAR 52.222-90, “Addressing DEI Discrimination by Federal Contractors.”

Contractors who refuse a bilateral modification face a harder question, whether the applicable agency will conclude the unmodified contract no longer meets its needs and should therefore be terminated for convenience. Noncompliance with the clause itself carries consequences that go well beyond a contract dispute. Failure to comply is now an enumerated basis for suspension and debarment, with False Claims Act exposure close behind.

Don’t get burned this summer. This blog focuses on one compliance knot worth untangling before the summer is out: the growing tension between FAR 52.222-90 and the state and local supplier diversity requirements. Many state and local governments continue to maintain diversity programs that require or strongly encourage contractors to do business with minority-owned, women-owned, and other designated business enterprises. For contractors holding both federal and state contracts, these two frameworks are now on a potential collision course. For a broader overview of EO 14398 and what it requires of federal contractors, see our earlier post, “New DEI Executive Order: What Federal Contractors Need to Watch and How to Plan Moving Forward.”

FAR 52.222-90 in a Nutshell

In March 2026, President Trump signed Executive Order 14398 and the FAR Council followed with introducing a new mandatory contract clause, FAR 52.222-90, that agencies began inserting into solicitations and contracts with a July 24, 2026 deadline to bilaterally modify existing contracts.

The new clause requires contractors to agree that, in connection with the performance of work under a covered federal contract, they will not engage in any “racially discriminatory DEI activities.” FAR 22.2201, which was added as part of the new Subpart 22.22 implementing the clause, defines that phrase as disparate treatment based on race or ethnicity in:

• Recruitment and employment decisions (hiring, promotions);
• Contracting decisions (vendor agreements, supplier selection);
• Program participation, including access to training, mentorship, leadership development, educational opportunities, and similar opportunities sponsored or established by the contractor; and
• Allocation or deployment of an entity’s resources.

The clause flows down to subcontractors at every tier, including those providing commercial products and commercial services. Noncompliance carries serious consequences. Failure to comply with FAR 52.222-90 is now an enumerated basis for suspension and debarment. For a detailed breakdown of the False Claims Act exposure this creates see our earlier post on EO 14398.

The Phrase that Pays and Why It Does

Before concluding that FAR 52.222-90 wipes out a contractor’s state-level supplier diversity obligations, it is essential to focus on what the clause actually says. The prohibition applies in connection with the performance of work under a covered contract.

The clause targets conduct. It is not a company-wide ban on all race-conscious activity across every part of a contractor’s business. Whether a particular subcontracting decision on a state contract is “in connection with” the performance of a federal contract depends on the specific facts: how the contractor’s vendor selection processes are structured, whether they operate as a single enterprise function or are maintained separately by contract type, and whether the same personnel and decision-making processes govern both.

That said, this analysis is unsettled. No formal guidance has been issued specifically addressing how FAR 52.222-90 interacts with state diversity requirements, and the question is explicitly among the open issues practitioners are tracking.

Where the Conflict Gets Complicated

For contractors operating in both spaces, the risk concentrates in a few areas:

Enterprise-level subcontracting processes. If your company uses a single, integrated vendor approval or supplier diversity program that governs subcontractor selection across all contracts (federal and state alike) that program is potentially “in connection with” your federal contract performance even when a specific subcontractor is only performing state work. A race-conscious policy that runs through the same approval chain as your federal subcontracts will likely face heightened scrutiny.

Subcontractor flow-downs. FAR 52.222-90 must flow down to subcontractors at every tier. A subcontractor who accepts that flow-down on a federal prime contract but is independently subject to a state supplier diversity requirement on other work faces its own version of the same conflict and the prime contractor bears responsibility for reporting known or reasonably knowable violations up the chain.

Records access and reporting obligations. The clause gives contracting officers the right to access books, records, and accounts to assess compliance. A contractor’s vendor selection history, including decisions made in connection with state contracts, may become visible during a compliance inquiry.

What Contractors Should Be Doing Now

Review your contracts and obligations. Identify every active federal and state contract and document the supplier diversity or set-aside requirements attached to each. This is the foundational step for any compliance analysis and the starting point for any conversation with counsel.

Assess how your subcontracting decisions are made. If your vendor selection and supplier diversity processes operate as a unified enterprise function (the same team, the same approvals, the same tracking system, etc.) that structure creates risk under FAR 52.222-90 even for decisions that relate to state work. Understand how your processes are organized before a contracting officer asks. If the answer is that a single integrated function governs both, contractors should consider whether it is feasible to segregate those processes by establishing separate teams, approval chains, and tracking systems for federal contract work versus state and municipal work. Structural separation will not be possible or practical for every contractor, but where it is achievable, it is a practical step toward reducing the risk of overlap between state and federal contract performance.

Review your subcontract agreements. FAR 52.222-90 must be flowed down. Review your existing subcontract terms, understand which of your subcontractors may themselves have state-level diversity obligations, and address any resulting conflict proactively in your subcontract modifications.

Document your compliance analysis. In an enforcement environment that is still developing, demonstrating that your company identified this issue, analyzed it, and made reasonable, good-faith decisions about how to structure its compliance program matters.

Monitor the litigation. EO 14398 is currently subject to a legal challenge filed in the District of Maryland in April 2026. Future judicial developments could affect the scope or enforcement posture of FAR 52.222-90, and contractors making longer-term compliance investments should monitor that litigation as it develops.

Stay Cool and Stay Compliant

The tension between FAR 52.222-90 and state requirements is complicated, unresolved, and likely not going away this summer. Contractors holding both federal and state awards need to approach this as a fact-specific compliance problem, not a binary choice between one framework and the other. Getting ahead of it now, while the regulatory guidance and litigation are still developing, is far less costly than addressing it after a compliance inquiry arrives.  For contractors with questions about how these requirements apply to their specific contracts and programs, the attorneys at Ward & Berry are available to help.