Media playback is unsupported on your device Media caption Transport Secretary Patrick McLoughlin: "We'll create a simpler and clearer structure and government process for rail franchise competitions"

A report into the collapse of the £5bn West Coast Mainline franchise deal has blamed a "damning failure" by the Department for Transport (DfT).

The Laidlaw report was published hours after the government announced Virgin Trains will run the service for another 23 months - until 9 November 2014.

FirstGroup was told it had won the bid in August.

The government scrapped that decision in October because of numerical mistakes - at a cost of at least £40m.

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.

Three senior civil servants at the DfT, who were suspended after the scrapping of the bid, can now return to work.

One of the officials, Kate Mingay, launched a legal action against the department last week, saying her role had been "inaccurately" portrayed.

The independent inquiry into the collapsed tendering process was led by Sam Laidlaw, chief executive of Centrica, the owner of British Gas.

He said on Thursday his report had revealed "a lack of transparency, inadequate planning and preparation, as well as a complex and confusing organisational structure with weak quality assurance and insufficient governance oversight".

'Inaccurate reports'

Transport Secretary Patrick McLoughlin, revealing the report's findings to MPs in the Commons, said it made "extremely uncomfortable reading" for his department.

He said there was a "damning failure" by the DfT which had to be put right. The report had found "serious problems" and "unacceptable flaws", he said.

These incorrect figures varied in ways which were wrong Transport Secretary Patrick McLoughlin

But Mr McLoughlin cited Mr Laidlaw's findings that ministers had been given inaccurate reports and they had awarded the contract without being told about flaws in the bidding process.

The transport secretary said the investigation by Mr Laidlaw - who will give evidence to the House of Commons Transport Select Committee on 18 December - found department officials "wrongly calculated the amount of risk capital bidders would have to offer to guarantee their franchise proposals".

"These incorrect figures varied in ways which were wrong," he said.

In his report, Mr Laidlaw also noted constant changes of permanent secretary at the DfT and said resources were "excessively stretched due to the government's spending review and the competing pressures of other projects".

Mr Laidlaw's initial findings, revealed in October, talked of officials not following their own guidelines, not treating the bidders equally, failing to include inflation in their figures and ignoring warnings of possible problems months before the deal capsized.

BBC transport correspondent Richard Westcott said that, while Mr Laidlaw's final report had not named names, another internal inquiry - the results of which will never be made public - will do just that.

Media playback is unsupported on your device Media caption Sir Richard Branson: "I'm sure the government will have learned from past mistakes."

A spokesman for FirstGroup said the report reiterated that it was not at fault and it hoped Mr Brown's review would "provide certainty and confidence in the future of rail franchising".

"It is especially disappointing that passengers and taxpayers will not see the benefits that our successful bid would have delivered," he added.

Virgin boss Sir Richard Branson said his company would "try to continue to do a great job" on the West Coast Mainline now that it had been allowed to run the service for another 23 months.

"It seems that it was a case of people being slightly incompetent and I think the important thing now is to move forward," he told the BBC News Channel.

"Our team are obviously greatly relieved and I think the travelling public are relieved," he added.

TSSA rail union leader Manuel Cortes said the "long-running Whitehall farce that is rail franchising just gets more ludicrous by the day".

"So we have spent £40m of taxpayers' money on a franchise which has stayed with Sir Richard Branson anyway," he added.

'Shocking ineptitude'

But rail customer watchdog Passenger Focus welcomed the Virgin Trains development saying passengers would "welcome the stability this deal will bring".

It's disgraceful, but not out of character for this Tory-led government, how quick ministers were to try to pin the blame on civil servants Public and Commercial Services union

And Association of Train Operating Companies chief executive Michael Roberts said passengers and the rail industry would now have clarity about the next two years on the West Coast line and urged ministers and officials to "get the programme of franchising back on course".

Shadow transport secretary Maria Eagle said the Laidlaw inquiry had delivered "a damning verdict on the government's shambolic and incompetent handling of rail franchising since the election".

And Rail, Maritime and Transport union general secretary Bob Crow said that, "because of the shocking ineptitude right at the top of this rotten government, Sir Richard Branson has muscled his way into a monopoly provider position".

The Public and Commercial Services union, meanwhile, which represents one of the three suspended civil servants, said the report confirmed the issues involved in the bid were "very complex".

"It's disgraceful, but not out of character for this Tory-led government, how quick ministers were to try to pin the blame on civil servants," it said.