By Joanna Colosimo
BLOG OVERVIEW: On April 10, 2026, DOJ announced a $17 million False Claims Act settlement with IBM—the first resolution under the Civil Rights Fraud Initiative—over allegations that IBM's DEI-related employment practices violated anti-discrimination certifications tied to its federal contracts. The settlement centers on FAR clause 52.222-26, derived from the now-revoked Executive Order 11246, raising questions about the continued legal exposure contractors face under legacy contract clauses. The case signals that DOJ is actively using fraud statutes to enforce civil rights compliance in the federal contracting space, with the ability to look back several years at contractor practices. Federal contractors should evaluate their current and historical DEI-related programs to ensure alignment with both past obligations and the current enforcement framework.
On April 10, 2026, the U.S. Department of Justice (DOJ) announced that IBM has agreed to pay just over $17 million to resolve allegations that its workplace practices violated federal anti-discrimination requirements tied to its government contracts. According to DOJ, the settlement addressed claims that IBM maintained employment practices that considered race or sex in ways inconsistent with federal law, while simultaneously certifying compliance with those same requirements as a federal contractor. This was the first False Claims Act resolution under the Civil Rights Fraud Initiative launched in May 2025.
Government Allegations
DOJ’s allegations center on IBM’s obligations under federal contracting rules, which require companies not only to refrain from employment discrimination based on race, color, national origin, or sex, but also to affirmatively certify their compliance when seeking payment under government contracts. The government contended that IBM failed to meet these obligations while continuing to seek federal funds.
According to DOJ, the challenged practices included the use of employment criteria and incentive structures that factored demographic characteristics into hiring, promotion, or compensation decisions. The government asserted that these practices conflicted with long-standing civil rights laws governing equal employment opportunity. Examples of illegal employment activities cited in the settlement included using a diversity modifier that was tied to bonus compensation and achieving demographic targets, altering interview criteria based on race or sex through diverse interview slates, as well as offering certain training, mentoring, and leadership programs to only certain employees based on race or sex. Approximately $8.2 million of the settlement was for restitution, and another $8.8 million was for civil penalties.
Legal Framework of the Settlement
Notably, the case was resolved under the False Claims Act, a statute traditionally used to address fraud involving government funds. DOJ argued that by certifying compliance with anti-discrimination requirements while allegedly maintaining contrary practices as outlined in the above examples, IBM submitted false claims for payment.
At the center of the settlement is Federal Acquisition Regulation (FAR) clause 52.222‑26 (Equal Opportunity), a mandatory contract clause historically included in most federal contracts above $10,000. This clause implemented the nondiscrimination requirements of Executive Order (EO) 11246, which governed federal contractors for nearly sixty years prior to its revocation in 2025. It obligated contractors to ensure that employment decisions were made without regard to race, color, religion, sex, sexual orientation, gender identity, or national origin, and to implicitly certify that commitment as a condition of receiving federal funds.
It is important to note that EO 11246 and its implementing regulations explicitly prohibited quotas, set‑asides, and preferential treatment. While contractors subject to affirmative action planning requirements were required to conduct workforce analyses and set placement goals, those goals were not permitted to operate as numerical targets or influence individual employment decisions. The legal line drawn by EO 11246 was always clear; goals could inform outreach and recruitment strategies, but race‑ or sex‑based decision-making was not allowed.
Against that backdrop, DOJ’s allegations in the IBM matter were not framed around the mere existence of a previous affirmative action plan, but around whether certain employment practices crossed the line from lawful equal opportunity compliance into impermissible decision-making based on protected characteristics, which EO 11246 itself barred (e.g., EO 11246 explicitly prohibited quotas).
Notably, the citation of this FAR clause also raises questions in light of the more recent positions of the administration. After the revocation of EO 11246 in early 2025, newly appointed Office of Federal Contract Compliance Programs (OFCCP) Director Catherine Eschbach stated that EO 11246 and its enforcement framework had facilitated practices that were “out of step” with constitutional and statutory civil rights requirements and that contractors were required to wind down compliance within a 90‑day transition period. Director Eschbach further emphasized that OFCCP’s prior authority, particularly following the Supreme Court’s decision in Students for Fair Admissions, raised serious constitutional concerns and that the agency would cease enforcing requirements under EO 11246.
Just over a year later, however, the federal government entered a settlement with IBM that relies on FAR clauses expressly derived from EO 11246, even though that executive order has been revoked and its regulatory framework dismantled for future contracts.
Adding to the complexity, the current administration has issued new executive orders, most notably Executive Order 14398, grounded in the Federal Property and Administrative Services Act (Procurement Act) that again make civil rights compliance material to payment decisions and explicitly authorize False Claims Act enforcement for allegedly discriminatory diversity, equity, and inclusion (DEI) practices.
Response and Remedial Actions
As part of the resolution, IBM did not admit liability. The settlement explicitly states that it is not an admission of wrongdoing by the company. However, DOJ acknowledged that IBM cooperated with the investigation, including providing early disclosures from its internal review and assisting in calculating the settlement amount. The government also noted that IBM voluntarily modified or discontinued certain programs and practices that were the subject of the allegations, actions that factored into the final settlement terms.
Conclusion
While this settlement is specific to IBM, it carries broader implications for employers, federal contractors in particular. DOJ framed the resolution as a reminder that anti-discrimination laws prioritize employment decisions based on merit and job-related criteria and that contractors are expected to ensure consistency between internal employment practices and the legal certifications they make to the government.
For organizations operating in the federal contracting space, the case underscores the importance of carefully evaluating DEI‑related programs to ensure they are structured and implemented in a manner consistent with existing civil rights laws. Additionally, since this case looked back at IBM’s practices starting in 2019, federal contractors should also be aware that DOJ may scrutinize federal contractor practices from the past several years under the False Claims Act. In fact, the IBM settlement has highlighted a fundamental tension in the federal government’s evolving enforcement posture:
For federal contractors, this case serves as a reminder that:
As agencies continue to navigate various legal parameters, contractors should pay close attention not only to what the current rules say, but also to which historical clauses and certifications may still carry legal consequences for legacy contracts. It is imperative that federal contractors take the False Claims Act and federal contracting requirements seriously by performing non-discrimination reviews of policies, practices, procedures, and privileged data points.
DCI will continue to monitor for developments regarding federal contractors and the use of the False Claims Act. To sign up for future updates, click here.