The MoD was forced to suspend the £500mln,12-year contract for Capita to provide firefighting services on military services last year after Serco launched a lawsuit over the move.
Capita had beat Serco to win the contract, which involved the transfer of more than 2,000 staff at 78 defence fire stations worldwide, in June last year.
A day after the contract award was announced, the Financial Times reported that an assessment of Capita commissioned by the MoD had given the outsourcer the riskiest possible rating, which prompted Serco to challenge the decision.
The MoD and Serco agreed a deal to end the dispute in May this year and on Thursday the company confirmed that the two parties had reached a commercial settlement.
Serco said the agreement will allow the MoD to move forward with modernising the fire and rescue service and to avoid further delays to the Defence Fire and Rescue Project while also minimising legal costs to both parties.
Kevin Craven, the head of Serco’s UK and Europe division, said: "Serco is pleased that we have reached an amicable and constructive agreement with the UK Ministry of Defence.
“We also welcome the announcement that the MoD has commissioned an independent review into this procurement to be led by Tony Poulter, a non-executive director at the Department for Transport, and we look forward to contributing to this review.”