It is understood that the company held talks with rival bidder Babock International about making a joint offer for the yard which refits and refuels Britain's nuclear submarine fleet. But those talks foundered in the middle of last week after both sides failed to reach agreement.
A joint offer would have combined BAE's submarine construction yard at Barrow- in-Furness in Cumbria with Babcock's operations of the Faslane nuclear submarine base in Scotland and secured the two companies a leading position in the race to control Britain's submarine industry.
The lack of a partner is believed to be the main resason for BAE weighing up its options this weekend. It is believed that the company has been under pressure to find a partner from the Ministry of Defence, which has made clear it does not want one company dominating the industry.
Any new owner of Devonport would still have to work with BAE given its ownership of the Barrow yard.
BAE had previously held talks about teaming up with the only other remaining bidder in the auction, the US private equity group Carlyle. The MoD had welcomed the combination, believing that Carlyle's skill in reorganising businesses - which it had demonstrated through its involvement in the privatisation of Qinetiq, the defence research group - would help generate significant cost savings in maintainting the submarine fleet.
Lord Drayson, the defence procurement minister, has made it clear that he wants consolidation in the sector in order to drive down costs ahead of a programme to renew Britain's Trident nuclear deterrent, which is carried aboard four submarines.
However, the talks between BAE and the Carlyle group also broke down after the two companies failed to agree a valuation of the Barrow yard in a joint venture.
Last night, industry sources stressed that things could still change ahead of Thursday's deadline and that BAE had yet to make a final decision. BAE said: "We continue to look at various options. We will make a decision within the necessary timescale."
The timetable could also still slip although the MoD is believed to be keen to finalise the sale in the next few weeks. First-round offers valued the yard at around £350m, with Babcock submitting the highest bid. Whoever buys DML will be in a strong position to win the lion's share of work on Britain's planned new fleet of submarines. The £25bn programme will extend over a period of 20 years.
The Devonport sale comes after KBR, the US infrastructure group, was told to sell its 51 per cent stake in Devonport after a dispute with the MoD.
Drayson is believed to have been furious after Halliburton, KBR's parent, went ahead with an initial public offering of its subsidiary last year. Balfour Beatty and Weir Group own the remaining shares in Devonport and are also selling.
