At a Glance

On October 14, 2026, the U.S. District Court for the District of Maryland denied a preliminary injunction against Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors,” and declined to stay the FAR Council memorandum implementing it. National Association of Diversity Officers in Higher Education v. Trump, No. 26-cv-1532-ABA (D. Md. Oct. 14, 2026) (Abelson, J.). The mandatory contract clause remains in effect, and the government’s stipulated pause on False Claims Act enforcement expired on August 7, 2026.

The court’s reasoning may matter more to contractors than the result. The court held that the clause’s operative prohibition—”disparate treatment based on race or ethnicity”—carries its settled legal meaning of intentional discrimination, so the clause reaches only conduct that federal antidiscrimination law already prohibits. The court also read the clause as limited to work performed under the contract, and it relied on the government’s on-the-record concessions that research, teaching, publishing, and discussion of racial disparities are not covered.

For federal contractors, including Alaska Native Corporations, tribal enterprises, and Native Hawaiian Organizations, the opinion provides a framework for evaluating existing programs against the clause and a record to cite if enforcement reaches beyond intentional discrimination. It does not, however, immunize any particular program; the court repeatedly pointed to as-applied challenges as the remedy for overreach.

Background: EO 14398 and the FAR Memo

EO 14398, signed March 26, 2026, directs agencies to include a mandatory clause in federal contracts and subcontracts within 30 days, “to the extent permitted by law.” 91 Fed. Reg. 16,147. Under the clause, the contractor agrees, “in connection with the performance of work under this contract,” that:

1. It will not engage in “racially discriminatory DEI activities” as defined in section 2 of the Order.
2. It will furnish information and reports, including access to books, records, and accounts, as the contracting agency requires to ascertain compliance.
3. Noncompliance by the contractor or a subcontractor may result in cancellation, termination, or suspension of the contract, and the contractor or subcontractor may be declared ineligible for further government contracts.

Section 2(a) defines “racially discriminatory DEI activities” 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.” Section 4(d)(i) directs the Attorney General to consider False Claims Act actions against contractors or subcontractors that violate the clause.

On April 17, 2026, the FAR Council issued an implementation memorandum with model clause language identical to the Order’s. The FAR Memo directed agencies to update their FAR class deviations by April 27, 2026, and to modify existing contracts by July 24, 2026. The government later stipulated to delay any FCA enforcement related to the Order or the Memo until August 7, 2026. That date has passed.

Five associations challenged the Order and the Memo: three representing higher-education employees (NADOHE, the American Association of University Professors, and United Academics of Maryland-University of Maryland, College Park) and two construction trade associations (the National Association of Minority Contractors and its DMV Chapter). They asserted facial First Amendment claims, a Fifth Amendment vagueness claim, an ultra vires challenge to the FCA directive, and Administrative Procedure Act claims against the FAR Memo.

The case follows NADOHE I, 167 F.4th 86 (4th Cir. 2026), in which the Fourth Circuit upheld the certification provision of EO 14173 against a facial First Amendment challenge. That provision required contractors and grantees to certify that they do not operate DEI programs that violate federal antidiscrimination law. The Fourth Circuit reasoned that the First Amendment confers no right to violate those laws, and that existing law already required compliance.

The Court’s Decision

The court found no likelihood of success on the constitutional claims against the Order and no irreparable harm attributable to the FAR Memo. The court did find that plaintiffs likely have standing to challenge both the Order and the Memo.

First Amendment. Plaintiffs brought a facial overbreadth challenge, which required them to show that the Order’s unconstitutional applications are “substantially disproportionate” to its lawful sweep. The court agreed that the phrase “racially discriminatory DEI activities,” standing alone, is “far from self-explanatory” and that much of what plaintiffs feared losing is protected speech. But the clause incorporates the section 2(a) definition, and “disparate treatment” is a legal term of art, and the court held that the phrase means intentional discrimination—treating a person less favorably because of a protected trait. The court rejected plaintiffs’ argument that the words should carry their lay meaning of “treating things differently,” and found that the surrounding phrase “racially discriminatory” confirms the term-of-art reading. The court therefore concluded that the Order prohibits only what federal law already prohibits, and the plaintiff’s overbreadth claim failed for the same reasons as in NADOHE I.

The content-discrimination and unconstitutional-conditions claims failed on the same logic: there is no protected First Amendment interest in operating programs that violate federal antidiscrimination law. The court acknowledged that the Order may reach some intentional discrimination that Title VII does not, but noted that 42 U.S.C. § 1981 independently prohibits intentional race discrimination in making and enforcing contracts regardless of size, and that the First Amendment does not protect such discrimination in any event.

Fifth Amendment vagueness. Plaintiffs argued that the clause’s preface, “in connection with the performance of work under this contract,” left open whether the clause reaches a contractor’s activities outside the contract. The court held it does not. The clause applies only to work the contractor performs for the government under the contract in which the clause appears. Enforcement against speech or conduct outside the contract “may well be unconstitutional retaliation,” as government counsel acknowledged, and would be the subject of an as-applied challenge.

APA and the FAR Memo. The court declined to stay the FAR Memo. The Memo’s April 27 and July 24, 2026 deadlines derive directly from the Order’s 30-day and 120-day directives, and the Memo’s clause language is identical to the Order’s. Because the court declined to enjoin the Order, plaintiffs could not show irreparable harm from the Memo as distinct from the clause itself. The court did not reach whether the Memo is final agency action or whether it is arbitrary and capricious, leaving those questions for later in the case.

What the Clause Does and Does Not Reach

The opinion draws a line between race-based allocation decisions and expression or activity that merely concerns race. The opinion viewed the former as barred by the Order and contract clause, and the latter as not being impacted by the Order or contract clause. The table collects the court’s readings and the government’s concessions, which the court said it relied on only as confirmation of the text.

The court added that an FCA action or contract termination based on protected expression would be “unauthorized by the Contractors Order” and “could very well violate the First Amendment.” It also observed that targets of broader enforcement could point to the government’s representations in this case and in NADOHE I, and to the government’s duty of candor to the court.

Takeaways and Issues to Consider

The clause is in force, the FCA stipulation has expired, and the Fourth Circuit’s NADOHE I framework now governs the narrower Order as well. Contractors may want to consider the following issues in light of the opinion.

• The standard is intentional discrimination, not “anything that mentions race.” The court’s reading supplies a defined benchmark: less-favorable treatment of a person because of race or ethnicity, in connection with contract work. Programs, policies, and communications can be evaluated against that standard rather than against the broader lay reading plaintiffs feared.
• Expression and allocation are different things. The court repeatedly distinguished speech about race (courses, research, publications, historical discussion) from decisions that allocate opportunities or resources by race. How a program is designed, eligibility criteria versus subject matter, may matter more than how it is labeled.
• The scope limit is a contract-performance limit. Because the court read the clause as reaching only work performed under the contract, contractors may want to consider how clearly their records distinguish contract performance from corporate activities funded with other resources, and whether any programs straddle that line.
• The records-access provision is broad. The clause obligates contractors to furnish information and reports, including access to books, records, and accounts, for compliance purposes. How DEI-related materials, training content, and program documentation are maintained may warrant attention.
• Subcontractor noncompliance can affect the prime. The clause provides that a subcontractor’s noncompliance may result in termination or ineligibility. Flow-down terms, subcontractor representations, and due diligence are issues to consider.
• FCA exposure remains, but the court narrowed what could be “false.” Section 4(d)(i)’s FCA directive stands, and the court did not reach plaintiffs’ ultra vires challenge to it. At the same time, a certification of compliance with a clause that prohibits only intentional discrimination is harder to characterize as false based on expressive or race-neutral activity. Contractors may want to consider how compliance representations are framed.
• The government’s concessions are now part of the record. The court cited the hearing transcript for the government’s positions that disease research, historical discussion, and off-contract speech are not covered, and noted the government’s duty of candor.
• This was a facial challenge on a preliminary motion. The ruling does not validate any particular program. The court identified as-applied challenges as the vehicle for contesting specific enforcement actions, which puts a premium on contemporaneous documentation of what a program does and why.

Considerations for ANC, Tribal, and NHO Contractors

The opinion does not mention Native hiring preferences, shareholder programs, or Native-ownership-based contracting preferences, but its reasoning bears on each. The central question for Native-owned contractors is whether preferences tied to shareholder, tribal, or Native status are “disparate treatment based on race or ethnicity” under the clause. The opinion offers two threads that point in different directions, and Native contractors may want to consider both.

Shareholder and Native hiring preferences. Alaska Native Corporations and entities in which an ANC owns at least 25 percent of the equity are excluded from Title VII’s definition of “employer” under 43 U.S.C. § 1626(g), as are Indian tribes under 42 U.S.C. § 2000e(b). Title VII separately permits Indian preference by businesses on or near reservations. 42 U.S.C. § 2000e-2(i). Under Morton v. Mancari, 417 U.S. 535 (1974), preferences tied to tribal or Native status are political classifications rather than racial ones. The court’s holding that “disparate treatment based on race or ethnicity” means intentional discrimination because of a protected trait supports the position that status-based preferences fall outside the clause. But the clause is a contract term defined by the Order’s own text, not by cross-reference to Title VII and its exclusions. And the court expressly recognized that the Order may reach intentional discrimination that Title VII does not, pointing to 42 U.S.C. § 1981. How § 1981 interacts with Native preference is not addressed in the opinion.

Vendor and subcontracting preferences. The definition expressly lists “contracting (e.g., vendor agreements).” Preferences for Native-owned, ANC-owned, or tribally owned subcontractors and vendors, including those encouraged by federal programs such as the Indian Incentive Program and the Buy Indian Act, raise the same classification question. The Order applies “to the extent permitted by law,” and the court’s reading treats the clause as matching existing law. Contractors may want to consider whether the statutory basis for such preferences is documented, and whether the preference is framed around ownership status rather than the race of individuals.

Shareholder benefits and the contract-performance limit. The definition of illegal “DEI” includes “allocation or deployment of an entity’s resources,” which on its face could describe scholarships, elder benefits, dividends, settlement trust distributions, and other shareholder programs. The court’s holding that the clause reaches only work performed under the contract is significant here. Those programs are generally corporate functions under ANCSA, funded with corporate resources and administered outside any federal contract. Issues to consider include how clearly corporate records separate contract performance from shareholder programs, particularly where contract revenue funds those programs, where 8(a) subsidiary personnel administer them, or where program eligibility is described in contract-related materials.

Records access and FCA exposure. The records-access provision applies to the contractor’s books, records, and accounts for purposes of ascertaining compliance. Native contractors with shareholder-related records may want to consider the scope of that obligation. On the FCA side, the court’s narrowing of the clause to intentional discrimination reduces the range of conduct that could support a falsity theory, but the Attorney General’s directive to consider FCA actions remains in place, and subcontractor conduct can be attributed to the prime under the clause.

What Comes Next

The ruling is preliminary, and the litigation continues. Plaintiffs may seek an interlocutory appeal to the Fourth Circuit, where NADOHE I already supplies the governing framework and makes reversal on the facial First Amendment claims unlikely.

The more consequential developments are likely to come from enforcement rather than this case. The court’s repeated invitation to as-applied challenges means the next round of litigation will likely turn on specific agency actions: a contract termination, a records demand, or an FCA investigation tied to a particular program. Contractors may want to watch for agency guidance on how contracting officers will assess compliance, DOJ activity under section 4(d), and parallel challenges in other circuits.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice with regard to your situation, you should contact an attorney.