‘Reasonably Knowable’ in EO 14398: What Prime Contractors Need to Know About Subcontractor Oversight

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While the new contractual obligation is plainly written, the contours of what is “reasonably knowable” are less certain. For primes, the key question now is how far their due diligence and oversight responsibilities should extend into the operations of their subs, particularly in sensitive internal areas such as employment practices (e.g., hiring and promotions), employee program participation, contracting, or allocation or deployment of company resources. The clause’s focus on conduct “[i]n connection with” the contract and traditional industry practice in the prime–sub relationship can provide a compliance guide for primes grappling with understanding the new contractual dynamic with their subs.

Quick Hits

• The “reasonably knowable” standard in EO 14398 likely should not require prime contractors to affirmatively investigate all aspects of a subcontractor’s business, but it could require attention to information that arises through normal contract administration.
• The EO contract clause’s applicability to conduct “[i]n connection with the performance of work” likely limits a prime’s oversight obligation to issues tied to contract performance, not a sub’s internal employment practices generally.
• Analogous standards, including the False Claims Act framework, suggest that liability may attach where a prime contractor ignores clear red flags, not where it fails to uncover information outside its ordinary visibility.
• Agencies have not yet defined the contours of this standard, creating uncertainty and reinforcing the need for a measured, risk-based approach to subcontractor oversight.

A Standard Rooted in Knowledge, Not Surveillance

The phrase “reasonably knowable” may appear to impose an affirmative duty on prime contractors to investigate or actively monitor subcontractors’ compliance with the EO clause. A closer reading suggests a more measured standard. The clause likely ties the reporting obligation to what the prime knows or should know under the circumstances, not what could be discovered through exhaustive inquiry or audit.

This distinction matters. Federal procurement has operated on the principle that prime contractors manage subcontract performance, not the entirety of a subcontractor’s internal business operations. In practice, primes assess whether subs are delivering the required goods or services, meeting schedule and quality expectations, and complying with flow-down contract terms that impact delivery. Primes typically do not audit subs’ hiring practices, promotion decisions, or internal corporate policies unrelated to contract performance. The “reasonably knowable” standard should be read against that industry practice backdrop. By doing so, the standard does not appear to transform primes into general regulators of their subs’ enterprise operations.

The Limiting Effect of “In Connection With the Performance of Work”

The clause’s reference to conduct “in connection with the performance of work under this contract” is likely to be a key limiting principle. That language suggests the clause’s compliance focus is not on all aspects of a subcontractor’s business, but rather on conduct that has a nexus to contract performance.

For example, information that comes to light through ordinary contract administration activities such as performance reviews, deliverable assessments, site visits, or communications with subcontractor personnel may fall within the scope of what is reasonably knowable. By contrast, internal employment practices that have no discernible connection to contract performance may fall outside that scope, particularly where the prime lacks visibility into those practices through its normal oversight functions.

This interpretation aligns with long-standing procurement norms. Prime contractors are not typically expected to “police” subcontractors beyond what is necessary to ensure contract compliance. Extending the obligation further could create significant practical and legal challenges, including tensions with corporate separateness and potential exposure to unrelated employment law issues.

Lessons From the False Claims Act and From Common Law Standards

Although EO 14398 does not define “reasonably knowable,” analogous standards in federal law provide useful context. The scienter standard under the False Claims Act, for example, includes not only actual knowledge but also “deliberate ignorance” and “reckless disregard” of the truth or falsity of information. Courts interpreting that standard have generally declined to impose liability for mere negligence or for failing to uncover information that was not reasonably accessible.

Similarly, common law doctrines often frame “reasonably knowable” information as that which would be discovered through the exercise of ordinary diligence under the circumstances. This is not a duty of exhaustive investigation, but rather a duty not to ignore red flags that are apparent within the scope of one’s responsibilities.

Applied to the EO contract clause, these analogues suggest that a prime contractor may have an obligation to act where there are clear indicators of problematic conduct tied to contract performance that arise in the course of normal oversight. On the other hand, the standard likely does not require proactive audits of subcontractor policies or affirmative efforts to uncover information that is not otherwise visible.

Practical Implications for Prime Contractors

Even with these guideposts, there remains meaningful uncertainty regarding how contracting officers and agencies will interpret and enforce the “reasonably knowable” standard. Early implementation may vary across agencies, particularly as this requirement intersects with evolving policy positions on DEI-related activities.

In this environment, prime contractors may want to consider calibrating their compliance approaches without overcorrecting. Practical steps could include the following:

• Ensuring that subcontract management personnel are trained to recognize and escalate potential compliance issues that arise during routine oversight activities
• Reviewing subcontract terms to confirm that appropriate representations, certifications, and flow-down clauses are included
• Documenting ordinary course contract administration activities to establish what information was and was not reasonably available
• Avoiding unnecessary expansion of oversight into areas that are unrelated to contract performance and outside the prime’s traditional role

Based on the information currently available, the goal would appear to be to demonstrate reasonable diligence within the scope of the prime’s contractual responsibilities, but not to assume a generalized duty to investigate.

A Developing Standard Worth Watching

EO 14398 introduces a concept that is familiar in legal theory but new in this specific procurement context. The “reasonably knowable” standard sits somewhere between actual knowledge and strict liability, and its application will likely be shaped through agency guidance, contracting officer practice, and potentially enforcement actions.

For now, prime contractors may want to resist the instinct to either ignore the requirement or overextend their oversight functions. The more defensible position likely lies in grounding compliance efforts in established procurement practices, focusing on information obtained through normal contract administration, and remaining attentive to how agencies begin to interpret this standard in practice.

As with many recent developments in federal procurement policy, this is an area where thoughtful, measured implementation will be more effective than sweeping changes made in the absence of clear guidance.

Next Steps

Ogletree Deakins’ Diversity, Equity, and Inclusion Compliance Practice Group, Government Contracting and Reporting Practice Group, and Workforce Analytics and Compliance Practice Group will continue to monitor developments and provide updates on the Diversity, Equity, and Inclusion Compliance, Government Contracting and Reporting, and Workforce Analytics and Compliance blogs as additional information becomes available.

This article and more information on how the Trump administration’s actions impact employers can be found on Ogletree Deakins’ Administration Resource Hub.

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