An interim investigation into the West Coast Main Line franchise process has found "significant errors", a "flawed process" and "inadequate planning".
The findings were revealed by Transport Secretary Patrick McLoughlin in a statement to the House of Commons.
But he said his department had been "frank and open" about the mistakes.
The decision to award the multi-billion pound rail franchise to FirstGroup over Virgin was scrapped by the government on 2 October.
The bidding process for the line, which serves 31 million passengers travelling between London, the West Midlands, the north-west of England, north Wales and the central belt of Scotland, was also put on hold after "significant technical flaws" were discovered.
The transport secretary said the flaws came about because of mistakes by Department for Transport (DfT) staff and three civil servants were suspended.
Mr McLoughlin told MPs he received the interim report into the franchise collapse from Sam Laidlaw, who was commissioned by the Department for Transport to look into what happened.
He said the report made "uncomfortable reading" before he outlined its findings.
In a letter to Mr McLoughlin, Mr Laidlaw wrote: "In seeking to run a complex and novel franchising competition process, an accumulation of significant errors, described in the report, resulted in a flawed process."
He added: "These errors appear to have been caused by factors including inadequate planning and preparation, a complex organisational structure, and a weak governance and quality assurance framework."
In his statement on Monday, Mr McLoughlin said there had been a lack of transparency, inconsistencies in the treatment of bidders and technical flaws in the franchising process.
"It is clear that the inquiry has identified a number of issues which confirm that my decision to cancel the franchise competition was necessary," he said.
"These include a lack of transparency in the bidding process, the fact that published guidance was not complied with when bids were being processed, inconsistencies in the treatment of bidders and confirmation of technical flaws in the model used to calculate the amount of risk capital bidders were asked to provide to guard against the risk of default."
The Laidlaw inquiry also mentions factors "that appear to have caused or contributed to the issues raised".
Shadow transport secretary Maria Eagle said the cabinet ministers involved in the original process should take responsibility for its failures "instead of blaming officials".
"Ministers must not be allowed to shuffle off responsibility - not my words but the words of the prime minister. This isn't just a faulty process, it's a faulty government," she said.
The DfT announced in August that FirstGroup, rather than Sir Richard Branson's Virgin Trains, had won the bidding process to operate a new 13-year West Coast franchise.
Sir Richard, whose company had run the line since 1997, dubbed the process "insane" and launched a legal challenge to the decision.
It was while preparing to defend the court challenge that mistakes in managing the West Coast bidding process were found.
Mr McLoughlin scrapped the bidding and suspended bidding on other franchises.
He said the estimated cost of reimbursing four companies for the cost of their bids would be £40m.
A further report into the process, with firm conclusions, is expected by the end of November.