Life sciences companies should be aware of a new contract clause and accompanying guidance from the Federal Acquisition Regulatory Council (“FAR Council”) implementing President Trump’s Executive Order 14398, Addressing DEI Discrimination by Federal Contractors. Effective April 24, 2026, all new Federal solicitations and contracts subject to the Federal Acquisition Regulation (“FAR”) must contain a new FAR clause requiring certification that the contractor does not engage in “racially discriminatory DEI activities,” as defined by the clause, in connection with the performance of work under the contract. Under the guidance, agencies must also modify all existing FAR-covered contracts to include the requisite certification language by July 24, 2026, and contractors will be required to flow down the clause in their subcontracts.
Executive Order 14398 and FAR Guidance
As Gibson Dunn covered in a client alert here, on March 26, 2026, President Trump issued Executive Order 14398, directing agencies, including those subject to the Federal Property and Administrative Services Act (“FPASA”), to incorporate into federal contracts a clause prohibiting “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.” The Order further directed agencies to require federal contractors to certify compliance with the Order, report subcontractor violations, acknowledge the materiality of the certification under the False Claims Act (“FCA”), and make records available for inspection.
In addition to instructing agencies to implement these requirements in their contracts, the Order required the FAR Council—which directs and coordinates federal government-wide procurement policy—to amend the FAR to: (i) include a mandatory clause prohibiting “racially discriminatory DEI activities” in federal procurement, solicitations, and contracts; and (ii) remove any provisions that conflict or are otherwise inconsistent with the mandatory clause.
On April 17, 2026, the FAR Council issued a memorandum interpreting the Order and providing implementation guidance to agencies. Absent approval from the FAR Council for any additional deviation, the guidance instructs agencies to implement in all new solicitations and contracts as of April 24, 2026 a FAR deviation clause that would prohibit contractors from engaging in “racially discriminatory DEI activities,” and to modify their existing contracts to include this provision by July 24, 2026. Notably, at least in this guidance and EO 14398, the prohibited activities are limited to those concerning race and ethnicity, not any other protected characteristics; readers should bear in mind, however, that EO 14398 sits alongside EO 14173 (January 2025), which reaches a broader set of DEI activities not limited to race and ethnicity and remains in force.
The clause must be flowed down to subcontractors for which the place of delivery or performance is in the United States, and it provides that the contract may be terminated, canceled, or suspended if a contractor or subcontractor does not comply. The clause further provides that noncompliance may be a basis for ineligibility for further government contracts. Under the FAR Council guidance, if a contractor refuses to agree to a bilateral contract modification incorporating this clause, agency contracting officers are instructed to consider whether “absent the modification, the contract no longer meets the agency’s needs and should therefore be terminated for convenience.” The full text to be inserted in all applicable government contracts is as follows:
FAR 52.222-90, Addressing DEI Discrimination by Federal Contractors
(a) Definitions. As used in this clause—
Program participation means membership or participation in, or access or admission to: training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities that are sponsored or established by the contractor or subcontractor.
Racially discriminatory diversity, equity, and inclusion (DEI) activities mean[] 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.
(b) In connection with the performance of work under this contract, the Contractor agrees as follows:
(1) The Contractor will not engage in any racially discriminatory DEI activities.
(2) The Contractor will furnish all information and reports, including providing access to books, records, and accounts, as required by the Contracting Officer, for purposes of ascertaining compliance with this clause.
(3) In the event of the Contractor’s or a subcontractor’s noncompliance with this clause, this contract may be canceled, terminated, or suspended in whole or in part, and the Contractor or subcontractor may be declared ineligible for further Government contracts.
(4) The Contractor will report any subcontractor’s known or reasonably knowable conduct that may violate this clause to the Contracting Officer and take any appropriate remedial actions directed by the Contracting Officer.
(5) The Contractor will inform the Contracting Officer if a subcontractor sues the Contractor and the suit puts at issue, in any way, the validity of this clause.
(6) The Contractor recognizes that compliance with the requirements of this clause are material to the Government’s payment decisions for purposes of [the False Claims Act].
(c) The Contractor must include the substance of this clause, including this paragraph (c), in subcontracts at any tier, including those for commercial products and commercial services, for which the place of delivery or performance is in the United States.
At least one lawsuit has already been filed that seeks to enjoin EO 14398 and vacate the April 17, 2026 FAR Council guidance. See National Association of Diversity Officers in Higher Education et al v. Trump, No. 8:26-cv-01532 (D. Md. 2026). That litigation is ongoing and, for the time being, EO 14398 and the FAR Council guidance remain in effect.
Life Sciences Contracts Likely Subject to the Executive Order and FAR Guidance
Life sciences companies that hold contracts with the federal government are likely to see this new clause in solicitations and in proposed modifications to existing contracts by July 24, 2026, even if full implementation lags behind the timelines directed by the FAR Guidance.
The reach of the new guidance will vary across sectors and agencies and will largely turn on whether a company’s government funding flows through a FAR-covered procurement contract, a grant or cooperative agreement, an Other Transaction Authority (“OTA”) agreement, or another vehicle. For life sciences companies, this distinction is rarely uniform across a portfolio and is often misunderstood at the business-unit level. FAR-covered awards typically include traditional procurement contracts with the Biomedical Advanced Research and Development Authority (“BARDA”) within the U.S. Department of Health and Human Services (“HHS”); supply and Federal Supply Schedule contracts with the U.S. Department of Veterans Affairs (“VA”), which carry Section 603 pricing obligations and reach essentially every branded biopharma seller into the federal channel; biodefense and medical countermeasure contracts with the U.S. Department of Defense (“DOD”) and Department of Homeland Security (“DHS”); and many task orders issued by the National Institute of Allergy and Infectious Diseases (“NIAID”) and the National Cancer Institute (“NCI”) under HHS contract vehicles.
Non-FAR-covered vehicles are not currently subject to the FAR Council’s guidance, but Executive Order 14398 is not by its terms limited to FAR-covered contracts and executive agencies are likely to adopt parallel certification regimes. Three vehicles common in life sciences warrant particular attention:
First, Other Transaction Authority agreements. Many of BARDA’s highest-profile medical countermeasure awards—including those issued under Project BioShield and the Strategic National Stockpile—are structured as OTA agreements under 42 U.S.C. § 247d-7e rather than as FAR-covered procurement contracts. OTA agreements are authorized by a separate statutory framework from traditional procurement contracts. Companies with active OTA awards should not assume the new clause will be incorporated automatically, but should monitor regulatory developments and agreement officer requests for parallel terms; the Administration has signaled an intent to extend the substance of the Order beyond FAR-covered vehicles, and HHS could plausibly impose certification language administratively in OTA terms and conditions or in renewal cycles.
Second, NIH grants and cooperative agreements. NIH research grants and cooperative agreements are governed by the Uniform Guidance at 2 C.F.R. Part 200, not by the FAR, and the FAR Council’s implementing memorandum does not by its terms reach them. Sponsored research programs that flow through R01, U01, P30, or similar mechanisms therefore sit outside the immediate compliance perimeter. NIH does, however, issue FAR-covered contracts through institute-specific contract vehicles (NIAID and NCI in particular), and those awards are squarely in scope. Companies should triage their NIH portfolio by award type rather than treating “NIH funding” as a single bucket. The Office of Management and Budget (“OMB”) retains authority to harmonize the Uniform Guidance with the Order, and a forthcoming OMB action would extend the compliance footprint materially.
Third, CMS payment arrangements. CMS payment relationships with manufacturers (rebate agreements under the Medicaid Drug Rebate Program, the 340B program, Medicare Part B and Part D contracting) are not FAR procurement contracts and would not be modified under the FAR Council guidance. Companies with traditional CMS procurement contracts (for example, contracts for Medicare Administrative Contractor services, quality measurement, or research and evaluation) should expect FAR-clause modifications and should watch for parallel CMS sub-regulatory guidance.
EO 14398 requires all agency heads to report on compliance with the Order to the Assistant to the President for Domestic Policy by July 24, 2026, and the contours of agency-level implementation across the non-FAR vehicles described above are likely to come into focus around that date.
Tension with NIH, NSF, and FDA Clinical Trial Diversity Frameworks
The Executive Order 14398 and FAR 52.222-90 definition of “racially discriminatory DEI activities” expressly reaches “program participation,” defined to include training, mentoring, leadership development, educational opportunities, clubs, associations, and similar opportunities sponsored by the contractor. That definition does not, on its face, reach clinical trial recruitment, but it sits in obvious tension with sponsor obligations under longstanding NIH and FDA frameworks intended to improve demographic representation in clinical research—most notably, the requirement for submission of a diversity action plan codified in Section 505-1(z) of the Federal Food, Drug, and Cosmetic Act for sponsors of Phase 3 and other pivotal studies of drugs and devices, and the requirement in Section 610 of the FDA Reauthorization Act of 2017 (“FDARA”) that FDA issue guidance to “address methodological approaches” that a sponsor can take “to develop eligibility criteria for, and increase trial recruitment to, clinical trials so that enrollment in such trials more accurately reflects the patients most likely to receive the drug, as applicable and as appropriate, while establishing safe use and supporting findings of substantial evidence of effectiveness.” An FDA final guidance issued in December 2025, as required by Section 610 of FDARA, removed reference to “diversity” and “inclusivity,” although it continued to recommend enrollment of participants with “age, sex, race, and ethnicity” characteristics relevant to the treatment population. The NSF has also previously issued guidance, last updated in July 2025, that “[r]esearchers may recruit or study individuals based on protected characteristics when doing so is . . . intrinsic to the research question,” among other criteria.
In light of the above, sponsors with active BARDA, DOD, or other FAR-covered awards should expect to confront, at minimum, an interpretive question about whether trial recruitment strategies that take race or ethnicity into account—targeted site selection, community engagement programs, or enrollment goals tied to demographic representativeness—fall within the “program participation” bucket. The conservative reading is that recruitment for participation in a clinical trial is not “program participation” in the sense the clause uses it, since the sponsor is not sponsoring or establishing the trial as an opportunity offered to participants; the broader reading is that any race-conscious enrollment strategy creates exposure, with FCA materiality compounding the risk. This is compounded by a recent proposed rule by OMB that seeks to substantially revise government-wide regulations for the management of federal grants and other federal financial assistance, in part expressly to prohibit federal agencies and pass-through entities from using federal awards to “fund, promote, encourage, subsidize, or facilitate” DEI initiatives that “violate any applicable Federal anti-discrimination laws,” including, specifically, “racial preferences or other forms of racial discrimination.” This drafting tension is unresolved and is the most biotech-distinctive interpretive question raised by the Order.
Flowdown and Compliance Monitoring for Academic Medical Centers, CROs, and Clinical Sites
The flowdown and subcontractor compliance obligations raise key compliance burdens for many sponsors. A biotech firm with a FAR-covered BARDA contract running a Phase 3 study at multiple academic medical centers will likely need to include the clause in its master clinical trial agreements with those sites, in CRO services agreements covering performance in the United States, and in subagreements with central laboratories, imaging vendors, and other downstream service providers. Many of the institutional subcontractors in this chain—academic medical centers in particular—sponsor pipeline programs, identity-based affinity groups, supplier diversity initiatives, and similar activities that the FAR Council’s expansive reading of the clause may sweep in. Sponsors should expect substantive negotiation from their lower-tier subcontractors over the flowdown language, requests for carve-outs or representations qualified to activities “in connection with performance of the contract,” and in some cases refusals that will require sponsors to consider whether to escalate to the contracting officer or change subcontractors. None of these conversations can wait until the July 24, 2026 modification deadline.
Considerations for the Life Science Sector
Life sciences companies with federal contracts or subcontracts may consider taking the following steps:
- Assess existing contracts and monitor agency guidance. The Executive Order and FAR Guidance do not specifically define the scope of federal contracts implicated, and instead the Order states that it applies broadly to federal contracts, including those subject to FPASA. At a minimum, any existing contracts subject to FAR and valued above the FAR’s $15,000 micro-purchase threshold are within scope of the FAR Council’s directives to add the clause to new solicitations and resulting contract awards, and to incorporate that clause into existing contracts by July 24, 2026. Companies should monitor any additional agency guidance and prepare for any requests for contract modifications, as well as any actions that may be necessary to implement flowdown to subcontracts. Agencies will note any variances from the model deviation, or their adoption of it, on Acquisition.gov. For example, the VA has already adopted the model deviation.
- Be aware of the broad scope of the covered activities and review existing DEI programs. The definition of “racially discriminatory DEI activities” is expansive, encompassing disparate treatment in recruitment, hiring, promotions, contracting, and program participation. Federal contractors should consider retaining outside counsel to carefully review any programs that involve race or ethnicity as a factor—including mentorship programs, professional development initiatives, supplier diversity programs, and employee resource groups—to assess potential exposure. Similarly, given the flowdown obligations that extend to contractors’ supply chain, contractors should consider what actions may be necessary to review subcontractor programs or otherwise require that subcontractors certify compliance.
- Consider known or reasonably knowable subcontractor conduct. The Order and FAR Guidance place affirmative obligations on prime contractors to report any known or reasonably knowable subcontractor conduct that may violate the clause. This creates significant compliance challenges, as contractors may face liability for subcontractor conduct in violation of the Order and FAR clause that they knew or reasonably should have known about. To mitigate risk, prime contractors should establish administrable protocols for assessing and reporting subcontractor violations.
- Evaluate and prepare for False Claims Act exposure. The Order’s explicit link between noncompliance and FCA risk is significant. By deeming compliance with the clause “material” to government payment decisions, the Order and FAR Guidance underscore the potential for FCA liability—including treble damages and civil penalties—for contractors found to have engaged in prohibited activities. As a doctrinal matter, contractors should bear in mind that the Order’s “deemed material” recital does not, by itself, satisfy the materiality standard articulated by the Supreme Court. Courts assess materiality by the “natural tendency” or “capability” of the misrepresentation to influence the government’s payment decision as judged in significant part by the government’s actual payment behavior; a recital labeling a requirement “material” is given weight but is not dispositive. The asymmetric risk is therefore qui tam suits by private relators with insider visibility into a contractor’s DEI programs, with the Order directing expedited government review of such cases. The burdens of defending FCA allegations can be substantial even where the underlying materiality case is contestable. This qui tam mechanism is designed to incentivize private enforcement of the Order’s requirements by contractor employees and others purporting to act on the government’s behalf.