Lockheed Missiles & Space Company, Inc.

Case 13.10

Lockheed Missiles & Space Company, Inc. (Lockheed), sent out a request to potential subcontractors, seeking bids for the manufacture of 124 ballast cans for the Trident II nuclear submarines it was building for the U.S. Navy. In February 1989, Lockheed received eight bids, including one from Sulzer Bingham Pumps, Inc. (Sulzer). Sulzer was the lowest bidder, at $6,544,055. The next lowest bid was $10,176,670, and the bids ranged up to $17,766,327. Lockheed itself estimated that the job would cost at least $8.5 million. Lockheed’s employees were shocked by Sulzer’s bid and thought it was surprisingly low. Lockheed then inspected Sulzer’s Portland facility to evaluate Sulzer’s technical capabilities. The inspection revealed that Sulzer would have to make many modifications to its existing facility in order to complete the contract. Lockheed did not reveal its findings to Sulzer. In addition, it never notified Sulzer that its bid was significantly lower than the next lowest bid and lower than Lockheed’s own estimate of the cost of the job as well. Finally, Sulzer was never told that Lockheed suspected that the contract could not be completed at the bid price. Lockheed accepted Sulzer’s bid, and Sulzer started work. Nine months later, Sulzer revised its estimate of the cost of the job and asked Lockheed for an additional $2,110,000 in compensation. When Lockheed rejected this request, Sulzer sued Lockheed, asking the court to either increase the price of the contract to $8,645,000 or, alternatively, to rescind its bid. Did Lockheed act ethically in this case by not notifying Sulzer of the suspected mistake? Did Sulzer act ethically by trying to get out of the contract because of its own economic misjudgments? Legally, who wins?

In the Lockheed case, the Request For Proposal (RFP) needed to include any technical requirements for the production of the ballast cans. It would have been