West Coast Main Line: FirstGroup considers legal action over contract fiasco Mr McLoughlin's move came as a surprise to FirstGroup which, only on Tuesday, issued a trading statement saying it continued "to prepare for a successful mobilisation" on the West Coast on Dec 9. Tim O'Toole, FirstGroup chief executive, said he was "gutted" by the decision and stood by his bid. "I would deliver it today," he said. Asked whether FirstGroup could take legal action, a spokesman said: "We are looking at all our options." The news was broken to Mr O'Toole via a phone call from Mr McLoughlin just before midnight on Tuesday. He also called Sir Richard and Sir Brian Souter, chief executive of Stagecoach, which owns 49pc of Virgin Rail. Sir Richard, who spent £14m on Virgin Rail's bid, said Mr McLoughlin had apologised and admitted "the Department for Transport was 100pc guilty. We so believed we were right on this. The discovery of the errors is a humiliating setback for the transport department, which had repeatedly rebuffed questions from Virgin Rail over how it had assessed the bids. Industry sources pointed the finger at former Transport Secretary Justine Greening, moved in last month's reshuffle to International Development, and Theresa Villiers, the former rail minister promoted to Northern Ireland Secretary. Ms Greening had insisted she had overseen a "robust" process, leading Mr McLoughlin to tell MPs on the Transport Committee last month that: "I am content with the way the Department exercised its review of the contract." He has now found: "Mistakes were made in the way in which inflation and passenger numbers were taken into account, and how much money bidders were then asked to guarantee as a result." The findings go to the heart of Virgin Rail's complaint that because of FirstGroup's riskier bid, based on revenue growth of 10.4pc a year, it should have been required to put more capital at risk that £190m. Due to flaws in the franchising process, Mr McLoughlin has now also suspended three other bids - Great Western, Essex Thameside and Thameslink. The Government has also undertaken to return bidders' costs that could total £50m. Mr McLoughlin has also asked senior businessmen to undertake two urgent reviews. Centrica chief executive Sam Laidlaw and PwC strategy chairman Ed Smith will scrutinise what went wrong on the West Coast, while Eurostar chairman Richard Brown will look at the "wider franchising programme." Mr McLoughlin also met Tony Collins, the Virgin Rail chief executive, yesterday to discuss extending its current West Coast contract on a management basis. It could take a year before the contract is rebid.