Federal Court Declines to Block DEI Contractor Executive Order: What Higher Education Institutions Need to Know

On Oct. 14, 2026, the U.S. District Court for the District of Maryland denied a request by a coalition of higher education and contractor associations to preliminarily enjoin Executive Order 14398, “Addressing DEI Discrimination by Federal Contractors” (the FAR DEI Order), and to stay the Federal Acquisition Regulatory (FAR) Council’s April 17, 2026, implementing memorandum, “Agency Implementation of Executive Order 14398, Addressing DEI Discrimination by Federal Contractors” (the FAR Memo). As a result, the mandatory contract clause at the center of the FAR DEI Order remains in force: All federal contractors and subcontractors, including colleges and universities that hold federal contracts or subcontracts, will be required to accept a clause barring “racially discriminatory DEI activities,” backed by reporting and records-access obligations and termination and debarment remedies, as well as the risk of potential False Claims Act (FCA) liability. At the same time, the court gave the clause a meaningfully narrow reading that contractors and subcontractors can rely on: The operative phrase, “disparate treatment based on race or ethnicity,” carries its settled legal meaning of intentional discrimination already prohibited by federal law.

Background

This case is the second round of litigation brought by the National Association of Diversity Officers in Higher Education (NADOHE) over federal DEI policy. In January 2025, Executive Order 14173 required agencies to include in “every contract or grant award” a term certifying that the recipient “does not operate any programs promoting DEI that violate any applicable Federal anti-discrimination laws.” In NADOHE v. Trump, 167 F.4th 86 (4th Cir. 2026) (NADOHE I), the Fourth Circuit held that the certification was not facially overbroad because it “requires only that plaintiffs certify compliance with federal antidiscrimination laws, which the First Amendment doesn’t confer a right to violate.”

President Donald Trump followed with the FAR DEI Order on March 26, 2026, which the court aptly described as a “narrower” directive. It requires agencies, “to the extent permitted by law,” to include a model clause in federal procurement contracts (with flow-down required to subcontracts at every tier). Under the clause, the contractor (or subcontractor) agrees, in connection with contract performance, not to engage in “racially discriminatory DEI activities”; to furnish information and provide access to books, records and accounts; to report subcontractors’ “known or reasonably knowable” violations; to notify the agency of any subcontractor suit challenging the clause; and to recognize that compliance is “material to the Government’s payment decisions” under the FCA. Noncompliance may lead to cancellation, termination or suspension of the contract and to a finding of ineligibility for future awards.

The order defines “racially discriminatory DEI activities” as disparate treatment based on race or ethnicity in the (1) recruitment, (2) employment (e.g., hiring and promotions), (3) contracting (e.g., vendor agreements), (4) program participation or (5) allocation or deployment of an entity’s resources. Of particular significance for higher education, “program participation” includes access to “training, mentoring, or leadership development programs; educational opportunities; clubs; associations; or similar opportunities” the contractor sponsors.

Most notably, the FAR DEI Order also directs the attorney general to consider FCA actions against contractors or subcontractors that violate the principles implemented through a corresponding FAR clause.

The FAR Memo implements the order through a clause (FAR 52.222-90) that will be included in all new contracts and implemented through modification in all existing contracts above the micro-purchase threshold, including commercial contracts, performed in the United States, also requiring prime contractors and subcontractors to flow down the clause to subcontracts at any tier. Contracting officers were directed to make “every effort” to modify existing contracts bilaterally by July 24, 2026, and to consider termination for convenience if a contractor refuses to agree to a modification. The memo also adds noncompliance as a basis for suspension and debarment. The government has, as a general matter, implemented the clause on the contemplated timeline, and it is generally included in all federal solicitations and has been modified into most federal prime contracts.

The Court’s Analysis

The plaintiffs are five associations: three represent members in higher education (NADOHE, the American Association of University Professors, and the United Academics of Maryland — University of Maryland, College Park), while the other two represent minority construction contractors. Supported by member declarations describing canceled work and a chilling effect on the use of words like “diversity” and “equity,” they challenged the FAR DEI Order under the First and Fifth Amendments and the FAR Memo under the Administrative Procedure Act (APA).

First Amendment

Because the plaintiffs brought a facial overbreadth challenge, the court required them to show that the order’s unconstitutional applications are “realistic, not fanciful” and “substantially disproportionate” to its lawful sweep. The court candidly acknowledged that the phrase “racially discriminatory DEI activities,” standing alone, “may very well have run afoul of the First Amendment” because it is “far from self-explanatory.” Nonetheless, the court denied the challenge because the clause incorporates the order’s definition, which turns on “disparate treatment,” a legal term of art that is “essentially synonymous with unlawful intentional discrimination.” The court declined the plaintiffs’ invitation to read the term in its lay sense of simply treating things differently, reasoning that terms of art carry their established meaning and that the surrounding words “racially discriminatory” confirm that reading.

The court then addressed the examples most important to colleges and universities:

• Research on diseases with “disparate negative health outcomes for particular races” is “directed at the disease” and does not treat anyone less favorably because of race.
• Courses, scholarship and publications on race, diversity, equity and inclusion “are forms of expression about race” that do not necessarily involve disparate treatment in any covered activity. An FCA action premised on such speech, the court observed (in dicta), “would be unauthorized by the [FAR DEI] Order” and “could very well violate the First Amendment.”
• The court also noted the government’s concessions that such research would not be barred and that a contract “could not be terminated” for discussing “historical examples of racial disparities,” while reminding the government of its “duty of candor.”

The plaintiffs’ content-discrimination and unconstitutional-conditions theories failed for the same reason. Because there is no protected First Amendment interest in operating programs that violate antidiscrimination law, an order that requires compliance with that law neither regulates protected content nor imposes an unconstitutional condition. The court added that federal law (42 U.S.C. § 1981) independently prohibits intentional discrimination by employers too small to be covered by Title VII.

Fifth Amendment and APA

The court likewise rejected the plaintiffs’ vagueness challenge, holding that the clause’s preface, “[i]n connection with the performance of work under this contract,” confines it to “work the contractor is performing for the government pursuant to the contract in which the model language appears.” Government counsel conceded that the government “is not allowed to bar … protected speech outside of the scope of the contract,” and the court warned that enforcement reaching beyond the contract “may well be unconstitutional retaliation” subject to an as-applied challenge.

Finally, the court found that the FAR Memo’s requirements, including its April 27 and July 24, 2026, deadlines, “stem directly from” and are “substantially identical” to the FAR DEI Order. Having declined to enjoin the order, the court concluded that the plaintiffs could not show likely success or irreparable harm attributable to the memo itself, and it did not reach whether the memo is final agency action.

Practical Implications for Higher Education Institutions

The decision is a preliminary ruling on a facial challenge, not a final judgment, and it leaves room for as-applied challenges to specific enforcement actions. Its practical effect, however, is immediate. Consistent with agency practice, institutions should assume that FAR 52.222-90 will appear in their covered prime contracts and in subcontracts flowed down from prime contractors. To the extent that an institution’s contracts have not been modified, it should similarly be advised that declining a modification is likely to invite significant scrutiny, including potential termination.

The FCA risk deserves particular attention. By accepting the clause, an institution acknowledges that compliance is material to the government’s payment decisions, which may make it easier for the government or a relator to establish that element (though ultimately it will be up to a court to decide whether the falsity at issue is material to the payment of a claim). Institutions should prepare for potential whistleblower activity and agency inquiries and should document the nondiscriminatory basis for contract-related decisions.

McGuireWoods will continue to monitor this litigation. For assistance evaluating contract clauses, conducting privileged program reviews or responding to agency inquiries, contact the authors or your McGuireWoods relationship attorney.