Recently, we looked at part of a Court of Federal Claims (COFC) decision regarding the duty of good faith and fair dealing. In that post, we observed how, unsurprisingly, the government’s insistence that a contractor carry out the express terms of a contract is not strong ground for a claim of breach of the duty of good faith and fair dealing. In this post, we’re going to continue our review of this case (with regards to the duty of good faith and fair dealing) and give more general thoughts on this duty. We’ll finish up with a third post that addresses the biggest issue in this case.
As a brief refresher, Sunrez Corporation (Sunrez) is a contractor that performs numerous Small Business Innovation Research (SBIR) contracts. It received a SBIR contract from the USAF to develop pallets. However, the USAF didn’t move forward with these pallets as the pallets didn’t pass initial testing and Sunrez’s technical data package (TDP) didn’t comply with contract requirements. Sunrez, in part, made a claim of breach of duty of good faith and fair dealing against the USAF under a number of grounds. The COFC heard this case in Sunrez Corp. v. United States, No. 21-568, 2025 WL 731834 (Fed. Cl. Mar. 7, 2025). Today, we explore more of the decision here.
Decision to Not Move Forward
After finding the government did not breach the duty with regards to the TDP and the testing, COFC turned its attention to the decision to not move forward with Sunrez’s pallets. Sunrez asserted that the USAF favored lesser alternatives over Sunrez, treating the former as successes and Sunrez’s pallets as failures. However, in oral argument, the court asked Sunrez whether it was against SBIR rules for two SBIR phase two contracts to basically be in competition with each other. Sunrez had to acknowledge it was not against SBIR rules. Furthermore, Sunrez had to acknowledge that the USAF could use different standards for different SBIR contracts at different levels. Such competition did not create a breach of the duty of good faith and fair dealing. USAF had never promised in the Sunrez contract that it would not pursue other, similar contracts, and a breach of good faith and fair dealing can only occur where a specific promise is undermined.
Alleged Lack of Communication
Sunrez alleged that the USAF ceased communications, only to resume them after the contract lapsed. However, the USAF was communicating with Sunrez throughout the period in question. Sunrez claimed that the USAF was not communicating with it in the way the agency was “supposed to.” But the court did not accept this argument. The fact Sunrez didn’t like the USAF’s communications did not constitute a breach. Again, there has to be some evidence that the government undermined a specific promise in the contract for a breach to exist. That did not exist here.
Government Cabal
One running theme of Sunrez’s argument is that the agency was engaging in a cabal to attempt to improperly obtain its data and give that data to a third party. The court noted that, if Sunrez could prove this, that could be a violation of the duty of good faith and fair dealing. However, the burden of proof for such a claim is substantial, and Sunrez’s offered proof didn’t clear that hurdle. Sunrez pointed to a number of emails in which the government insisted on unlimited data rights. Again, the problem with Sunrez’s claim is that it couldn’t show how this behavior undermined some sort of specific promise in the contract. Furthermore, the fact remains that the contract required Sunrez to provide a TDP with a specific level of detail in the first place, and the government’s insistence on getting that TDP was, of course, not a problem. While Sunrez also alleged a bait-and-switch by the agency, the simple fact was the agency never modified any provisions of the contract in a way that undermined Sunrez’s expectations from the original language.
Summary
We want to note an important theme here for this case: The fact that the government’s demands and actions may be frustrating and even detrimental to your company does not necessarily mean that government actors are breaching the duty of good faith and fair dealing. They have to explicitly undermine a specific promise in the contract. Looking at the Sunrez case, it is clear that such undermining never occurred. It is understandable that Sunrez did not like that the government decided to go with another contractor’s pallets over their own. It would be odd if Sunrez wasn’t upset by that.
But that alone doesn’t mean the government breached any duties towards Sunrez. The government never promised Sunrez that it would advance to the next phase in SBIR. It never promised a further contract. The fact it went with another contractor was not only within the government’s rights, it did not even affect any of the promises the government made to Sunrez. That is the key thing. No government actions prevented Sunrez from carrying out the contract that was awarded to it, nor deprive Sunrez of the benefits of that contract.
At least so far in our analysis, it seems Sunrez wasn’t entirely sure of the terms of the contract it accepted from the government. This is why it is so crucial to review the terms of a solicitation in detail. It is not just to be sure you can prepare a proposal that meets the requirements, as important as that is. It is also crucial so that you know just what you’re getting into. Just because a contract at first appears very lucrative does not necessarily mean it’s worth it. There may be provisions in there that are impossible for you to meet, or demand something of you that you don’t want to give up.
We’ll finish up our review of this case in the near future, so stay tuned.
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