I would tell my boss
It does sound like a conflict of interest to me, but one that requires only disclosure to your boss (rather than divesiture by you--which in this case would probably mean asking for a reassignment). Of course, your boss can decide it would be best to reassign you, given your disclosed conflict of interest. Depending on your boss's abilty to assign the job to someone else, your boss may well want to have an extended discussion with you about your ability to act wholehearedly on engineering considerations and not your father's interests, first. If your boss has no one else to whom to give the assignment, your boss may want to monitor your work on it more closely that usual. (If so, it need not mean that your boss does not trust you, but only that it is very hard to avoid both acting on, and over-compensating for, bias. That is why experiments are often double-blind.)
Whether you tell your dad, depends on the nature of your relationship and what you normally discuss. I don't see that you are required to tell him, and if you think he would only ask you to act in his interest, then that would be a reason to tell your boss only or tell your Dad only if and after you have been reassigned.