Last week, on the one-year anniversary of SBA suspending it from all Federal contracting, ATI Government Solutions filed suit in Federal court to get its suspension overturned. SBA had initially suspended the 8(a) tribal firm because of undercover videos where an ATI employee suggested that ATI was a pass-through. But, the videos were deceptively edited, according to ATI, and the now year-old suspension—with no new supporting evidence—has become what the company calls “a brazen violation of Plaintiffs’ constitutional rights.”
Days later, SBA and GSA announced a new round of 8(a) audits. The audits target 689 former 8(a) companies that SBA had terminated after the December 2025 “data call.” GSA “will examine” the companies’ contracts for “potential improper awards, false statements, and pass-through arrangements.”
SBA Administrator Kelly Loeffler has said that the 8(a) program is “a pass-through vehicle for rampant abuse and fraud.” But, according to ATI’s complaint, SBA has not found any evidence of pass-through fraud in ATI’s case. “At no point has ATI operated as an unlawful ‘pass-through,’” ATI states.
And 10 months after its massive data call, SBA is calling in GSA to examine 8(a) contracts for possible pass-throughs. SBA hasn’t said that it has caught any itself.
Plus, data doesn’t support the conclusion that the 8(a) program is a “pass-through vehicle.” The term “pass-through” is colloquial for excessive subcontracting. Only 5% of the value of 8(a) contracts is subcontracted, according to my analysis of USAspending.gov data. Most of those subcontracts go to small businesses.
Granted, that data is flawed and incomplete, but it’s the best we have. SBA has pointed to the same USAspending data to spot pass-throughs, as has a conservative think tank. But the data doesn’t indicate that there’s any pass-through problem.
So where does SBA get this idea that pass-throughs are rampant in the 8(a) program?
ATI fights back
Apparently, it’s from YouTube. ATI’s lawsuit states that the only basis that SBA provided the company for its suspensions was three YouTube videos from the O’Keefe Media Group. Only one of those was on YouTube at the time of ATI’s suspension, according to ATI’s complaint. The other two were published afterward and can’t possibly be grounds for ATI’s suspension, ATI argues.
On the pass-through question, ATI says in its complaint that it met the subcontracting limits for 53 of its 57 contract periods (separately counting base and option periods). It says it would have complied on the remaining 4 had the government not terminated them early because of DOGE or the suspension. “ATI met the limitations on subcontracting and other performance of work requirements for each full Base Period, Option Period, or period of performance on its contracts, in compliance with 13 C.F.R. § 125.6,” the company states in the lawsuit.
Because of SBA’s suspension, ATI had almost all of its contracts terminated, according to the complaint. The company lost 90% of its monthly income and had to lay off its employees. The contracts terminated were worth $130 million.
ATI argues that SBA denied it due process, in violation of the Administrative Procedure Act and the Fifth Amendment. It’s now been a full year since SBA suspended ATI based on the YouTube videos. In that year, according to ATI’s complaint, the company has submitted evidence and written responses to SBA. They have had numerous meetings. SBA has not pointed to any evidence to support the suspension other than the videos, ATI states.
SBA has now kept the suspension in place past the one-year mark. “On October 21, 2026, SBA informed Plaintiffs that the FAR Suspension against Plaintiffs would be extended for an additional six months, citing FAR 9.407-4(b),” the complaint states. ATI wants the D.C. Federal district court to lift the suspension.
One judge already has addressed SBA’s actions on ATI. Ruling on the separate 8(a)-program suspension, Judge Christopher Holleman of SBA’s Office of Hearings and Appeals found that SBA’s “reasons for suspension are absent from the Administrative Record.” He ordered SBA to respond with its reasoning. But rather than respond, SBA lifted the 8(a) suspension while keeping the broader governmentwide suspension in place.
ATI’s Federal case has been assigned to D.C. District Court Judge Ana Reyes. This isn’t the first time Judge Reyes has had a case involving social media. She’s also the judge in the East Potomac Park golf-course case, in which she ordered the government to explain a late-night Truth Social post this week about closing the park.
The SBA/GSA audit
It’s also 10 months after the massive “data call” that SBA initiated based on that suspension. SBA collected three years worth of contracting documents and financial data from over 3,000 8(a) participants. The initial idea was to “publicize the broader outcome of its review through a press release or other means,” SBA told the Office of Management and Budget.
But, 10 months later, SBA hasn’t announced any outcome from the data call. SBA hasn’t reported suspending or terminating any 8(a) companies based on the documents they submitted.
Instead, the biggest result of the data call is that SBA terminated nearly 700 companies for failing to respond. Now, SBA is enlisting GSA to audit those companies’ contracts for pass-throughs and “potential improper awards.”
There aren’t actually that many awards. Two-thirds of the companies that didn’t respond to the data call didn’t have any 8(a) contracts, I found. They probably didn’t respond because, as business owners, they didn’t see an ROI on the time and money needed.
The GSA press release states that these 689 firms had “contracts with a collective ceiling of $5.5 billion.” GSA said it will refer suspected wrongdoing to the Department of Justice. The program that had $115 billion in awards over the past five years, so the $5.5 billion isn’t a lot in context. And, as those with IDIQ contracts know well, a high contract “ceiling” doesn’t mean that you’ll get awards anywhere close to that number.
That said, it’s reasonable for SBA and GSA to team up to audit subcontracts for pass-throughs. SBA should be doing more monitoring of subcontracting. SBA’s OIG recommended improved monitoring in its report last month. And, fifteen years ago, Congress told SBA and GSA to develop a subcontract monitoring system. The legal deadline for that system was 2013. It’s 2026, and the two agencies are finally working together on subcontracting.
Only 5% gets subcontracted, data show
Going back to YouTube, the conservative Claremont Institute posted a video last month in which the speaker says that the “vast majority of 8(a) money” goes to pass-throughs. The speaker cited $80 million in subcontracts to L3 Harris, as recorded in USAspending. But, in the same data, I found that the Alaska Native Corporation that issued those subcontracts won $4 billion in 8(a) contracts during that period. So the subcontracted amount is just 2%, not a vast majority.1
The overall data doesn’t support the claim either. For contracts over $40,000, the FAR requires contractors to report their first-tier subcontracts into the Federal Subaward Reporting System. The FSRS data then goes into USAspending. We can use that data for FY25 to examine whether a majority of 8(a) contracts are subcontracted. (The Revolutionary FAR Overhaul has eliminated this reporting for commercial products or commercial services, so this data won’t be as useful in the future. Also, FSRS was recently folded into SAM.)
The data shows that subcontracting on 8(a) contracts is low, and most of the subcontracting is to other small businesses. The subcontracts to 8(a) and other small businesses account for 60% of the subcontracts reported into USAspending.gov for 8(a) contracts. Out of $24 billion in 8(a) contracts in FY25, $400 million appears as subcontracted to large businesses.
Even before the RFO change, reporting compliance in FSRS was hit and miss. The FAR included an exemption for companies with less than $300,000 in gross income, and many firms didn’t even know about the requirement. This is the best source of information, but it likely undercounts the actual amount of subcontracting.
Regardless, SBA has relied on that same USAspending data. In a recent memo to the inspector general, SBA referred to the USAspending records to conclude that current subcontracting rules allow for “wasteful and abusive pass-through contracts.” I found that the data that SBA cited included a data-entry error, though. It has since been corrected.
Still, that’s over $400 million subcontracted to large businesses. And, because of persistent underreporting, the number is probably higher. So SBA and GSA aren’t wrong to go after pass-throughs in their next audits. There might be worrisome cases on an individual level. I don’t see anything in the data suggesting that pass-throughs are a “rampant” problem, though.
The ATI case doesn’t show a rampant problem either. The company’s complaint says that SBA is keeping it suspended not based on actual pass-through contracts, but instead because of the YouTube videos. Now it’s up to the Federal court to decide whether that’s enough.
With over 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. His website is www.samlelaw.com. This article is for informational purposes only and does not constitute legal advice.
The related Claremont Institute report cites contracts where subcontracting reached over 95%. These were on supply contracts, though, where high subcontracting is permitted by the nonmanufacturer rule.