The response to EO 14398 from federal prime contractors has been cautious and cooperative. This new executive order, “Addressing DEI Discrimination By Federal Contractors,” attempts to alleviate their struggles to understand the terms and conditions of its predecessor EO 14173, Ending Illegal Discrimination and RestoringMerit-based Opportunity, signed by the president on January 21, 2025.  The IBM settlement for $17.1 million with theU.S. Department of Justice (DOJ) on April 10, 2026 became the first model of enforcement for noncompliance with the president’s mandates to end efforts and policies to achieve Diversity, Equity, and Inclusion (DEI) in federal contracting.

However, in the IBM Settlement, the allegations made by DOJ do not pertain to EO 14398 or EO 14173; they pertain to FAR 52.222-26. According to a legal analysis by Dentons US LLP, “FAR 53.222.26 has been incorporated, in its current form, in many contracts since 2016.”  As the world’s largest law firm, Dentons provides actionable intelligence to help corporate legal teams navigate complex economic environments, compliance, and public policy changes.

“The DOJ’s use of FAR 52.222-26 is significant,” Dentons states, “because it shows that the DOJ is pursuing enforcement actions based on certain DEI practices that happened before EO 14173 was signed at the beginning of President Trump’s current term of office.

“The DOJ further alleged that IBM certified compliance with those requirements while knowingly maintaining the challenged practices described in the settlement. The settlement agreement does not specify when or how IBM allegedly certified its compliance with Title VII and FAR 52.222-26. In context, it appears likely that the certifications in question were part of the compliance reports required byEO 11246 as incorporated by FAR 52.222-26.”

Executive Order 11246 was a historic 1965 directive, signed by President Lyndon B.Johnson. It prohibited federal contractors and subcontractors from employment discrimination and required them to take affirmative action to ensure this is done without regard to their race, creed, color, or national origin. However,President Trump officially revoked the order with his EO 11473, entirely ending these federal contractor affirmative action and diversity mandates.

In addition, the Dentons’ legal analysis points out that FAR 52.222-26 disputes are governed by the procedures in 41 CFR 60-1, and not by the False Claims Act(FCA). “While 41 CFR 60-1 includes ways for the DOJ to enforce anti-discrimination rules against federal contractors, it does not explicitly include enforcement under the FCA,” the Dentons lawyers state. “The degree to which that may or may not have limited the DOJ’s legal theory remains unresolved. It is also unclear whether that potential issue factored into the decision by IBM and the DOJ to settle the matter without litigation.”

Enforcement under the FCA has monetary implications. Damages include three times (treble)the actual loss the government sustained, plus inflation-adjusted civil penalties per false claim. Enforcement under 41 CFR 60-1 is focused on the contract itself. Sanctions include the cancellation, termination, or suspension of current federal contracts and potential debarment from bidding on future federal work. For a detailed overview of the differences, go to menewsonline.com.

After conducting its own independent investigation, IBM disclosed its findings to DOJ, took voluntary remedial measures, including the termination and/or modification of various programs, policies and other activities that DOJ alleged were not in compliance with federal anti-discrimination requirements. Still, IBM denied that it engaged in the alleged conduct.

The court document states that IBM and the DOJ agreed to settle out of court “to avoid the delay, uncertainty, inconvenience, and expense of protracted litigation.”

It raises the question: Was IBM bullied or complicit by default? Post your thoughts below.

In concluding its legal analysis of the IBM Settlement, Dentons states, “The settlement between IBM and the DOJ is only a settlement, and does not represent an adjudication by a court of any of DOJ’s legal theories. Nevertheless, the settlement provides federal contractors with some concrete examples of practices that the DOJ may challenge, using the strong enforcement mechanisms of the FCA. The settlement also shows that the DOJ is not limiting its pursuit of FCA claims against such practices to contracts that include the clauses found in EO 14173 and EO 14398.”

DOJ’sarguments rested on two points:

1.    IBM “falsely certified compliance” with federal anti-discrimination requirements in its government contracts, specifically those identified in FAR 52.222-26, and not those in the newly issued FAR 52.222-90 on April 17, 2026 to facilitate implementation of EO 14173 and EO 14398.

2.     IBM allocated the costs of its DEI programs to federal contracts.

DOJ’s Allegations Focused on Four Categories of DEI Practices:

1.    Compensation Adjustments: Using a "diversity modifier"that tied employee bonuses and incentive pay to demographic targets.

2.    Hiring Practices: Modifying interview eligibility or utilizing differing panels/sourcing strategies based on race, color, national origin, or sex.

3.    Demographic Goals: Establishing race and sex-based demographic goals for business units that informed personnel decisions.

4.    Restricted Programs: Restricting mentorship, training, and leadership development programs based on protected characteristics.

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