The Department for Transport was warned yesterday never to allow "hope to triumph over experience" by always choosing the cheapest rail franchise bids.
The Commons Public Accounts Committee delivered a scathing attack on the now-defunct French-owned company Connex and the bodies meant to preside over its franchise in south-east England.
The report is published at a time of serious doubts over the ability of Great North Eastern Railways to fulfil its promise to pay a £1.3bn premium to the Exchequer.
Sir Richard Branson recently warned ministers he would refuse to enter a race to retain his Virgin CrossCountry franchise if the Government was interested only in a cut-price "bus run".
Edward Leigh, the chairman of the committee, said it was essential in future that the Department for Transport identify the operators most at risk from financial and operating failure and develop "an early warning system" to detect the emerging threats to the viability of franchises.
"The management and monitoring of franchises will be effective only if the responsible staff have the expertise and resolve to ask hard questions," he said.
He said the decision to award the south-eastern franchise to Connex, which had submitted the cheapest bid, had led to "myopia over what Connex could realistically deliver".
In June 2003 the Strategic Rail Authority terminated the Connex contract to "protect taxpayers' money", having provided it with £58.9m in additional subsidy. Mr Leigh said the need for such drastic action - at considerable cost to the taxpayer - should never have arisen in the first place. "There are many lessons here for the Department for Transport. It should certainly resolve never to allow hope to triumph over experience when assessing franchise bids in future," he said.
Mr Leigh said neither the SRA nor the Office of Passenger Rail Franchising, which originally awarded Connex the franchise, managed the risks. "The parties couldn't communicate properly and felt no trust in each other. The SRA was slow to realise Connex was running into money problems and Connex didn't rush to make this clear to the SRA.
"Connex became a byword for incompetence among cold and angry passengers waiting for trains that limped in late or simply didn't arrive."Reuse content