For a few weeks now, we have looked at a recent Court of Federal Claims (COFC) decision in two parts regarding the duty of good faith and fair dealing. In the first part, we observed how insistence on the terms of a contract is not a breach of good faith and fair dealing. In the second part, we discussed several separate considerations ranging from a decision to not move a project forward to the next phase to rejection of a claim of a government cabal. Now, we will conclude our look at this decision with the court’s review of the SBIR/STTR policy directive and its impact on the 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 Air Force (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 conclude our review of this decision.
SBIR Policy Directive
Finally, the court looked at Sunrez’s last remaining argument: That the USAF breached its duty of good faith and fair dealing based on SBIR data rights provisions in an SBIR policy directive. Sunrez argued this directive imposed additional duties on the USAF. This, of course, raised a few questions for the court. The court did note that the first question was whether this directive was binding. However, it did not address this question further, as it concluded that, regardless of whether it was or was not binding, none of the alleged violations of the directive constituted a breach of the duty of good faith and fair dealing.
Allegation 1: Failure to Include a Clause from the Directive
First, Sunrez argued that USAF violated the directive and thus the duty of good faith and fair dealing by failing to include a particular SBIR data rights clause in the contract. While this clause was later added by USAF, Sunrez insisted this initial exclusion was a breach as the USAF had deliberately kept it out of the contract at first. However, the court noted that even if failing to include the clause was a breach, Sunrez never showed that USAF intentionally failed to include the clause and had to admit that USAF fixed the issue. Furthermore, if the lack of such a clause was an issue, then the fact remains that Sunrez chose to enter that contract all the same, and further agreed to amend the contract to include the clause. This later addition of the clause solely benefitted Sunrez, hardly something that proves the agency has acted in anything but the best of faith. Simply put, the initial failure to include the clause neither interfered with Sunrez’s performance nor did it destroy Sunrez’s reasonable expectations in the benefits of the contract. There was thus no breach of the duty of good faith and fair dealing.
Allegation 2: Conditioning Phase III Award on Provision of Data
Sunrez then turned to the argument that USAF conditioned award of a next phase contract on Sunrez giving up its data rights, and that this violated the directive. The directive, to be sure, does state “[a]n agency must not, in any way, make issuance of an SBIR Phase III award conditional on data rights.” Sunrez argued that USAF’s insistence on Sunrez providing a draft technical data package (TDP) was making the award of the next phase conditional on provision of data rights. The court observed that Sunrez was confusing “data” with “data rights.” The draft TDP may contain a lot of data, but simply handing it over to the government doesn’t mean the government received the data rights. USAF was only insisting that Sunrez hand over the data, not the data rights. As such, it did not breach the directive. The same fact was noted for Sunrez’s alternative argument that USAF pressured Sunrez into giving up its data rights. Such simply never occurred.
Allegation 3: The Government Was Prematurely Negotiating for Data Rights for Phase III
Finally, Sunrez argued that USAF’s actions to add the data rights clause were actually a negotiation for data rights regarding a Phase III award, which the directive prohibited. But, quite simply, this argument didn’t make any sense. Sunrez was the one that asked the USAF to add the clause to the contract, and it was to Sunrez’s own benefit. Naturally, doing something to the benefit of a party doesn’t really track as violating a duty of good faith and fair dealing to that party. With that, the court granted the government’s motion for summary judgment.
Summary
This was a long case, but it is, frankly, one where the case was over the moment it was brought. The mere fact that the government does something that might upset a contractor is not a breach of the duty of good faith and fair dealing. And the government gets the benefit of the doubt on all bad faith allegations. Breach of the duty of good faith and fair dealing is not about whether an action necessarily undermines the contractor (we can all enter contracts that give us the short end of the stick). Rather, it’s about where the action undermines what the contractor reasonably expects from the contract or unreasonably prevents the contractor from carrying out their end of the bargain. The government prohibiting a contractor from being on the work site without reason–that might be a plausible argument for breach of duty of good faith and fair dealing. The government insisting on data that the contractor agreed it would provide the government, generally is not going to be a plausible argument for breach. Carefully review solicitations before entering a bid, and discuss them with counsel and the agency if you’re unsure about any provisions.
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