The company announced its decision after discovering a breach of Australian Department of Defense's tender protocols during its participation in the initial tender process for Joint Project 2072 Phase 2B.
A BAE Systems Australia statement said the two employees were dismissed following an internal investigation "and as a result of their actions, in line with BAE Systems code of conduct."
The company said it had advised the government and its business partners of its decision to withdraw from further stages of the Joint Project 2072 Phase 2B tender process.
The Defense Materiel Organization, the Department of Defense's procurement agency, is handling tenders for the Joint Project 2072 Battlespace Communications System-Land program.
Several major contracts already have been let under JP2072, a multiphased project to provide digital communication during battles and in theaters or war generally.
BAE's decision to remove itself from the running for Phase 2B is a blow but a necessary decision all the same, BAE Systems Australia Chief Executive David Allott said.
BAE didn't take the decision lightly but it reflects the company's zero-tolerance policy on ethical matters.
"We felt that we had developed a strong, locally based solution to meet the army's battlespace communications needs," Allott said.
"However, how we behave is just as important as how we operate and we are determined to act responsibly whenever and wherever any inappropriate behavior is detected. While this is the first time that we have identified an issue of this nature, we view this breach extremely seriously."
Allott said BAE is reviewing its business proposal processes for entering tenders "to ensure that it doesn't occur again."
Under previous phases of the project, BAE has seen one of its major communications competitors, Harris Corp., pick up multimillion-dollar orders.
Under Phase 2A -- the latest contract, let in February -- Harris won a $235 million order for its Falcon radios, a Type-1 tactical voice and data communications system.
The contract is for up to 11,000 digital combat radios to replace aging analog equipment.
Included is Harris's Falcon III AN/PRC-152(C) multi-band, multi-mode handheld tactical radio for portable line-of-sight and beyond-line-of-sight use.
The Australian army also is acquiring the Falcon II AN/PRC-150(C) manpack, "the world's only type-1 certified HF radio," a statement by Harris said. The unit is specific for when line-of-sight communication isn't an option.
Under a Phase 1 contract let in April 2010, Harris is supplying similar equipment worth around worth $125 million for similar equipment and adapters for installation in more than 1,000 armored vehicles.
Raytheon Australia also picked up an order under Phase one in January 2011 worth $70 million for more than 1,000 Enhanced Position Location Reporting and MicroLight radios and associated support.