Nineteen states and the District of Columbia have filed a lawsuit challenging the federal government’s rollout of Executive Order 14398, titled “Addressing DEI Discrimination by Federal Contractors.”
The coalition of plaintiff states challenges both the executive order and the federal agency actions taken to implement what they describe as unclear requirements across new and existing contracts.
Filed on June 10, 2026, the complaint names the United States, the Federal Acquisition Regulatory Council, and numerous federal agencies and agency officials as defendants.
Executive Order 14398, issued on March 26, 2026, directs agencies to add a new clause to federal contracts and contract-like instruments, including subcontracts held by lower-tier contractors.
The clause prohibits contractors from engaging in what the order terms “racially discriminatory DEI activities,” defined as disparate treatment based on race or ethnicity in recruitment, employment, contracting, program participation, or allocation of resources.
Contractors are also required to include flow-down clauses in subcontracts, report known or reasonably knowable subcontractor violations, and acknowledge that compliance is material to payment decisions under the False Claims Act.
The plaintiff states allege that the contract term is unclear and fails to provide sufficient explanation of what conduct it actually prohibits in practice.
The states argue the definition of “racially discriminatory DEI activities” echoes existing prohibitions without explaining how the new term differs from prior executive orders, including EO 11246, which had been in effect for 60 years.
The lawsuit also raises procedural and statutory challenges under the Administrative Procedure Act, alleging the FAR Council imposed contract terms with significant external effects without following required notice-and-comment procedures.
An April 17, 2026, implementation memorandum directed agencies to use the clause in new contracts beginning April 24, 2026, update class deviations by April 27, 2026, and add the clause to existing contracts by July 24, 2026.
The states argue the unclear terms impose significant compliance challenges, costs, and burdens given their regular participation in federal contracts and subcontracts through state agencies, instrumentalities, and universities.
Their collective federal contracts are worth billions of dollars annually, making the compliance uncertainty a matter of considerable financial and operational concern for the coalition.
The case was filed in the U.S. District Court for the District of Maryland and remains pending as of the time of publication.
This is not the only active litigation involving EO 14398, as plaintiffs including the National Association of Diversity Officers in Higher Education filed a separate lawsuit in April 2026 challenging the order on constitutional and ultra vires grounds.