The Department for Transport says that there were problems with the way the level of risk, attached to each bid, was evaluated.
Mistakes were made in the way inflation and passenger numbers were taken into account and how much money bidders were then asked to guarantee as a result.
The Transport Secretary has stressed that neither FirstGroup nor Virgin did anything wrong and that the errors were entirely down to a fault in Whitehall.
Boris Johnson says the rail franchise fiasco strengthens his case for taking charge of London's commuter services.
The future of rail services in the south-east has been thrown into disarray after ministers called a halt to several franchise competitions.