The deal was thrashed out after the Caribbean republic reneged on an agreement to buy three offshore patrol vessels to be used in a crackdown on gun runners and drug smugglers.
The row was triggered when a newly-elected government decided to scrap the contract in October, 2010.
The contract had been worth £150m and had been placed with BAE Systems in April, 2007, by political opponents who had previously run the affairs of both holiday islands.
They had claimed there had been building delays to all three vessels and that the combat system had malfunctioned during sea trials on two of the ships.
The Trinidad and Tobago government refused to accept the patrol ships and instead BAE launched a compensation battle at an international court of arbitration.
It held a private hearing over several days in London in May and last month Cabinet members in the Republic were known to have approved a payment to BAE of £130m to end the row.
Shipyard bosses refused to disclose the sum involved but last night issued a brief statement to confirm both sides had reached an agreement.
It means BAE officials have almost doubled their money.
While the dispute rumbled on the company revealed in the run-up to last Christmas that it had sold the three vessels to the Brazilian Navy for £133m.
Company chiefs refused to comment further but industry sources last night confirmed that BAE was to be given £130m in compensation by the Trinidad and Tobago government whose senior officials could not be contacted.