A government department has been branded "irresponsible" over its role in the collapse of the £5 billion West Coast Mainline rail contract.
A committee of MPs said the Transport Department had embarked on an "ambitious, perhaps unachievable" reform in haste, and claimed that ministers and senior officials were lied to.
FirstGroup was told it had won its bid to take over the franchise from Virgin Trains, but the decision was scrapped after the discovery of "significant technical flaws" in the way the procurement was conducted.
Virgin has now been told it can run the service until November 2014, with the fiasco costing taxpayers more than £40 million.
The mistakes came to light after bidder Virgin Trains, which had run the West Coast Mainline since 1997, launched a legal challenge against the decision.
A government-commissioned report led by businessman Sam Laidlaw last month gave a damning indictment of how the competition was handled.
Three members of staff at the DfT were suspended over the episode.
The Transport Committee said in its report on Thursday that embarking on the reform of franchising on the UK's most complex piece of railway was "irresponsible" and needed greater senior executive involvement and more technical expertise.
"A more direct description of what happened is that ministers and senior officials were lied to about how the outcome of the franchise competition had been reached." said the MPs' report.
"We cannot categorically rule out the possibility that officials manipulated the outcome of the competition not only to keep First Group in the running for as long as possible, as Mr Laidlaw suggested, but to ensure that First got the contract.
"We recommend that the DfT find a way of undertaking a full email capture, reporting to someone suitably independent, to help get to the bottom of why DfT staff discriminated against Virgin and in favour of First Group during the franchise competition."
The committee said that money which could have been spent on transport projects had instead gone to consultants, lawyers and review teams, on work which achieved nothing, and compensated train operators for the DfT's "incompetence."
Louise Ellman, chair of the committee said: "This episode revealed substantial problems of governance, assurance, policy and resources inside the Department for Transport.
"Embarking on an ambitious, perhaps unachievable, reform of franchising, in haste, on the UK's most complex piece of railway was an irresponsible decision for which ministers were ultimately responsible. This was compounded by major failures by civil servants, some of whom misled ministers.
"Many of the problems with the franchise competition, detailed in the Laidlaw report, reflect very badly on civil servants at the DfT. However, ministers approved a complex, perhaps unworkable, franchising policy at the same time as overseeing major cuts to the Department's resources. This was a recipe for failure which the DfT must learn from urgently."
The Committee called on the transport secretary and the DfT to explain why ministers and senior officials were misled about how subordinated loan facilities were calculated, to complete a full email capture and get to the bottom of whether or not any officials manipulated the outcome of the competition to ensure First Group were awarded the contracts and to provide a comprehensive breakdown of costs arising from the cancellation of the franchise competition.
"We also want to hear from the secretary of state what lessons he thinks current and future ministers must learn from this episode where policy ambition exceeded his department's capability and resources," added Ms Ellman.
Rail Maritime and Transport union leader Bob Crow said: "Although this report lifts the lid on the whole sordid business of rail franchising that led us to the West Coast Mainline fiasco, it fails to nail the killer point that two decades of railway privatisation has turned our tracks into a money-making racket that is beyond reform.
"The West Coast wasn't the first rail privatisation fiasco and it won't be the last until politicians wise up and do what 70% of the British people want and that is renationalise our entire railway network.
"The West Coast Mainline fiasco is simply the latest in a catalogue that includes two private sector failures on the East Coast and a bankrupt policy of corporate welfare on Britain's railways that is robbing us of over a billion pounds a year in profits, waste and subsidies."
Dave Prentis, general secretary of Unison, said: "The government's chaotic mishandling of its own contracting out process and the subsequent waste of £40m worth of taxpayer's money is a disgrace.
"£40m could have bought 160 new ambulances, paid for 8,000 pain relieving hip operations or more than 3,400 carers to support the elderly and vulnerable in their homes."
A DfT spokesman said: "Following the collapse of the West Coast refranchising programme, the Department for Transport was subject to two independent inquiries and an internal HR investigation. These have now concluded but the disciplinary process is ongoing.
"Independent experts concluded the collapse of the West Coast franchise programme was caused by a number of failures, including inadequate planning and weak governance structure but not systematic failings in the Department. The examination of emails from key officials found no evidence that this was anything other than simple human error.
"We are putting in place measures that will prevent this embarrassing episode from happening again and the Secretary of State has given an undertaking to keep Parliament updated on costs.
"While we are currently working to minimise the impact on the taxpayer, we estimate the failure of the competition and subsequent independent inquiries is around £48m."