• New clause FAR 52.222-90 declares contractor compliance “material” to the government’s payment decisions, creating direct False Claims Act liability for contractors who maintain prohibited programs.
• Agencies must bilaterally modify existing contracts to include the new clause by July 24, 2026, and if a contractor refuses, agencies are told to consider whether the contract should be terminated for convenience.
• Prime contractors must flow the clause down to all tiers and report any subcontractor’s “known or reasonably knowable” violations to the contracting officer.

While EO 14398, issued in March 2026, set the policy stage, this new memorandum provides the technical architecture and aggressive deadlines that federal contractors and subcontractors must navigate immediately.

Below, we break down the most critical developments that move this from a policy statement to an active compliance requirement.

1. The ‘Materiality’ Trap: False Claims Act Exposure

Perhaps the most significant legal development in the FAR Council’s guidance is in the text of the new clause, FAR 52.222-90(b)(6). It states that compliance with the race-based diversity, equity, and inclusion (DEI) discrimination ban is “material to the Government’s payment decisions” for purposes of 31 U.S.C. 3729(b)(4).

By explicitly linking DEI activities to the False Claims Act (FCA), the government has created significant litigation risk. Any contractor that maintains programs that meet the broad definition of “...

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