Federal Government Contractors Facing Uneven and Uncertain Subcontracting Risks Relating to DEI

Quick Hits

• The Revolutionary FAR Overhaul (RFO) is expected to proceed through formal notice and comment in the coming weeks and months.
• In the meantime, some changes are in effect through agency-specific deviations, some of which require a prime contractor to certify that “neither it nor any subcontractor or teaming partner operates or funds any program, policy, or initiative that promotes DEI in a manner that violates any applicable Federal anti-discrimination laws.”
• But the RFO is not currently set to deliver clarity on DEI certifications under EO 14173.

Ad Hoc EO 14173 Certifications: The Whole Supply Chain?

EO 14173 requires of all agencies the inclusion of contract terms that (1) establish the materiality of compliance with federal anti-discrimination laws to payment decisions under the False Claims Act (FCA) and (2) require certification that the recipient does not operate DEI programs that violate those laws. Litigation involving EO 14173 continues. Nevertheless, recent agency implementations have gone further than EO 14173, perhaps most prominently in specifically invoking criminal provisions, in placing severe responsibility on certifiers for downstream compliance without clear limits (i.e., downstream supplies or services necessary to the federal purpose), and in additional language attempting to establish materiality.

For example, the U.S. Department of Health and Human Services (HHS), in particular, requires the following provisions as part of its Civil Rights Assurance (in addition to a legacy requirement to submit Form HHS 690 Assurance of Compliance):

• “By applying for or accepting federal funds from HHS, recipients certify compliance with all federal antidiscrimination laws and these requirements and that complying with those laws is a material condition of receiving federal funding streams. Recipients are responsible for ensuring subrecipients, contractors, and partners also comply.”
• “The above requirements are conditions of payment that go [to] the essence of the Agreement and are therefore material terms of the Agreement.”
• “Payments under the Agreement are predicated on compliance with the above requirements, and therefore Recipient is not eligible for funding under the Agreement or to retain any funding under the Agreement absent compliance with the above requirements.”
• “Recipient acknowledges that this certification reflects a change in the government’s position regarding the materiality of the foregoing requirements and therefore any prior payment of similar claims does not reflect the materiality of the foregoing requirements to this Agreement.”
• “Recipient acknowledges that a knowing false statement relating to Recipient’s compliance with the above requirements and/or eligibility for the Agreement may subject Recipient to liability under the False Claims Act, 31 U.S.C. § 3729, and/or criminal liability, including under 18 U.S.C. §§ 287 and 1001.”

The U.S. Department of Agriculture goes even further, not only invoking criminal liability and additional materiality language, but also offering two different Anti-Discrimination and Diversity, Equity, and Inclusion (DEI) Certification clauses that require a contractor to certify that:

• “It is compliant with all applicable Federal anti-discrimination laws and the Equal Protection principles of the U.S. Constitution, and it will remain compliant for the duration of the contract.”
• “Neither it nor any subcontractor or teaming partner operates or funds any program, policy, or initiative that promotes DEI in a manner that violates any applicable Federal anti-discrimination laws, including but not limited to Title VI and VII of the Civil Rights Act of 1964, or the Equal Protection principles of the U.S. Constitution, and the Contractor and any subcontractor or teaming partner will not do so for the duration of the contract.”
• “[T]hat it will remain compliant with those laws [Title VI of the Civil Rights Act of 1964 or Title IX of the Education Amendments of 1972, as amended], including the requirements set forth in Executive Order 14168, Defending Women from Gender Ideology Extremism and Restoring Biological Truth to the Federal Government, and Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”

Escalating Enforcement and Next Steps

As widely reported, the U.S. Department of Justice (DOJ) has sought documents from large contractors and grantees across sectors and has signaled that maintaining certain DEI hiring, promotion, or program delivery practices while certifying compliance may give rise to implied false certification theories. The confluence of all these trends is potentially increased exposure if a contractor over‑relies on unsupported socioeconomic or DEI‑related representations in the supply chain.

Next Steps

Recipients of federal funds may want to consider inventorying the certifications embedded in current contracts and grants, noting whether they include payment‑conditioning language, change‑in‑materiality statements, or subrecipient responsibility (and the extent of those obligations). Recipients may also want to review existing subcontracts to ensure the existence of flowdown and nondiscrimination language and determine a framework for monitoring compliance, including, potentially, reviewing program materials, participant feedback, and outcomes. Above all, recipients will likely want to continue monitoring DOJ activity and the changes to the FAR as enforcement and rulemaking advance.

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 will provide updates on the Diversity, Equity, and Inclusion Compliance, Government Contracting and Reporting, and Workforce Analytics and Compliance blogs as additional information becomes available.

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