BAE Systems Australia will be prime contractor with EXPAL Systems as principal sub-contractor and partner, a statement by BAE said.
EXPAL is a part of MAXAM Group, which has headquarters in Spain.
Under the DMMA contract, the winner will run the two non-guided missile armaments production centers of Mulwala, a government owned establishment, and Benalla, built in 1996 and owned by Thales.
Both centers have been run by Thales since the 1990s.
The DMMA contract winner is expected to take over in the last half of 2015. The winner also will work with the Australian Department of Defense on general munitions procurement strategies.
BAE and EXPAL were the only suppliers that submitted individual bids for the DMMA contract.
The other four bidders, shortlisted in August last year, are: Alliant Techsystems Inc. of the United States teaming with the Australian small business NIOA Nominees; Raytheon Australia joining with Chemring Australia and Poonsang Corp. of South Korea; Rheinmetall Waffe Munitions of Germany which is working with the German firm Nitrochemie and Swiss company RUAG Ammotec; Thales Australia teaming with General Dynamics-OTS of the United States and NAMMO of Norway.
Australia's defense procurement agency Defense Materiel Organization said it met with the bidders at the Pacific 2012 Maritime Exhibition in February.
BAE Systems said if it wins it will use its expertise from its munitions manufacturing business in the United Kingdom and explosives and propellants development and production in the United States.
EXPAL Systems is a supplier of munitions and energetic materials including warheads, initiation systems, propellants and pyrotechnics.
"Our business and that of EXPAL System's is highly complementary and we also have a history of working together in the United Kingdom and the United States," BAE Systems Australia Chief Executive David Allott said.
"Together with our advanced demilitarization technologies and MAXAM Group, the second largest global supplier of civil explosives, facilities in 45 countries, operating in more than 100 countries and in Australia since 1989, we believe we have a team with all of the capabilities needed for DMMA."
In September, Thales Australia reorganized its armaments manufacturing businesses and created Australian Munitions.
The new division encompasses Thales's Victoria state Benalla factory, an explosives and propellants facility at the government's Mulwala site and other logistics services in Australia.
Kevin Wall, who joined Thales Australia in 2001, was made Thales Australia Armaments vice president.
Wall remains responsible for the company's Soldier Systems business. He is also the chief executive of Thales Australia's Registered Training Organization, which trains employees and customers in core armaments skills.
Before joining Thales, Wall was an ammunition technical officer in the army.
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