Queensland did not meet the usual criteria for justifying rail construction on economic grounds. The heavy capital investment required meant that railways had to serve large population centres and/or substantial industry in order to generate the level of traffic needed to operate profitably, and equally important, to pay the interest bill on borrowed capital. Unless the line was heavily used, the interest bill could be the major expense. Since the local capital market was too small, money to build railways was borrowed overseas, and only the governments had the necessary borrowing power. Overseas investors were generally only willing to build on terms - such as land grants - that were politically unacceptable in Australia. The interest bill could not be ignored, and if not met from rail revenue had to be paid out of tax revenue. 

Queensland was faced by a situation where economic development was hampered by the lack of an adequate transport network. In developed countries, railways had been introduced to areas where there was already a substantial road network, even if primitive by today's standards. This was not so in Queensland. Since the fastest road travel was only the fraction of the speed of even slow railway travel, it was natural to consider the possibility of a young colony leaping over road development and investing most of its resources in railways. This in fact took place and for sixty odd years from 1863, railways absorbed the majority of capital funds devoted by Colonial and State governments to transport. 

The first solution was the same as proposed by advocates of cheap construction in New South Wales - using horses hauling vehicles on rails. This combination, often using simply wooden rails, had proved valuable before the advent of steam engines. With proper bridges and well-engineered formation, it overcame the worst problem, that of teams becoming bogged for weeks in wet weather. It also eliminated the excessively steep climbs up ranges and out of unbridged creeks where the effort required far exceeded that to move goods along properly engineered roads. Queensland roads were simply formed by usage, explorers, horsemen and bullock teams often following old Aboriginal tracks. 

The Moreton Bay Tramway Company was formed in 1861 to build a wooden-railed horse-hauled tramway from Ipswich to Toowoomba. This was expected to be substantially cheaper than a properly constructed and macadamised road and offer similar or greater benefits. The company failed principally because there was insufficient capital within the colony. 

A major problem with horse tramways was that they cost a substantial fraction of the cost of a railway, yet, especially for passengers, were considerably inferior both in speed and comfort. Compared with a well-built road, they had little speed advantage, and much lower capacity and were only available for specially built vehicles. Although the company planned to use standard or five-feet gauge, its grades were too severe and its track too light to have permitted the subsequent use of steam locomotives without very substantial capital expenditure. Nevertheless, had this option been followed, the line might have eventually been so converted and saved Queensland the break of gauge problem for cross-border traffic. 

The other aspect was private company construction, the hallmark of railway enterprise in most of the world. The failure of this company reinforced what had been evident to many, that a railway was not a viable proposition in Queensland for private enterprise. The role of the railway in Queensland was to be the development of the country. This was to mean that railways would often be built into rural areas in advance of settlement and lead to the establishment of railway towns, towns which did not exist before the advent of the railway and which were often heavily dependent on the railway for their economic base. 

The engineer Abraham Fitzgibbon was brought to Queensland in 1863 and offered the Queensland government a radical engineering solution. He proposed that Queensland should have most of the benefits of rail transport immediately by adopting narrow gauge. This would substantially reduce the capital cost, thus making a railway affordable, within the borrowing capacity of the colonial government. The colony would have to sacrifice speed, yet a railway capable of half the average speed attained in Britain would still provide most of the benefits. In practical terms, 200 of narrow gauge rail travel taking ten hours at 20 miles per hour was infinitely preferable to 100 miles of broad gauge traversed at twice the speed followed by 100 miles of bullock tracks. For freight, where speed of transit was far less important than for passenger travel, the slow speed of narrow gauge scarcely mattered compared with broad gauge. Because of shunting en route the speed differential in favour of broad gauge was much less than for passenger trains. For goods the benefit in terms of freight cost, time for delivery, safety and reliability compared with current road transport was substantial and practically as great for narrow gauge as for broad gauge, given the transport task last century. 

Fitzgibbon had just built a short narrow gauge line in New Zealand. His argument was persuasive, but he could not disguise the fact that he was offering a solution which had not been tried anywhere else in the world. There were successful narrow gauge steam railways such as the Festiniog Railway in Wales, but it ran for only a few miles at very slow speed hauling slate and was hardly an appropriate parallel. 

Standard gauge - 4 feet 8 1/2 inches or 1435 mm was itself then considered a narrow gauge compared with the 7 feet [2134 mm] gauge promoted by Brunel for the Great Western Railway. The success of standard gauge in ousting broad gauge was in turn, for much of the world, followed by the adoption of narrow gauge, both three foot six (1067 mm) and metre gauge. 

Fitzgibbon provided the government with estimates prepared before a detailed survey of the country had been made, and disarmed critics with the comment that he expected proper survey might result in the actual cost being less than his estimate. The reverse proved to be the case. Although there was considerable opposition, including from engineers in the colony, Fitzgibbon's argument backed up by his professional reputation won the day. 

Had the figures he presented been the real cost of the line, the whole scheme might not have proceeded, or the narrow gauge might not have been adopted. Nevertheless it was still substantial cheaper than the lines then being built in the southern colonies. 

The main construction work was let on contract, to Peto, Brassey & Betts, contractors with world-wide railway construction experience who negotiated a fixed sum contract, rather than a schedule of prices. Their contract extended from Ipswich to Grandchester first, followed by a single contract for what had been advertised as four sections, Grandchester to Toowoomba. Also part of the original plan were Toowoomba to Dalby, and Toowoomba to Warwick. The railway opened to Grandchester in 1865, Toowoomba in 1867, Dalby in 1868 and Warwick in 1871. Completion of the original scheme was affected by the collapse of the British bank which had been issuing debentures to fund the project. 

Most subsequent contracts in the 19th century were for a schedule of prices. These entailed detailed supervision and measurement but enabled a contractor to price more keenly as they was less risk as unforeseen works was paid for at schedule rates while savings were passed on to the government rather than being windfall profits. The fixed price contract did not guarantee a fixed price, because the contract only covered the permanent way, and because government asked for extras and for a period took the work out of the contractors hands. The most expensive extra was a decision to alter the terminus from North Ipswich to South Ipswich. This was a late decision, and so, besides entailing the cost of a bridge over the Bremer River, left the railway with a circuitous route which could not be extended to Brisbane without making the original station into a dead end. Solving this involved a further deviation and a second bridge over the Bremer. The first Ipswich Workshops were originally located in the area which was to have been the terminus. QR now has to maintain a bridge over the river to reach the workshops even though the line now generates no revenue. 

The sequel to the government's taking the contract out of the contractor's hands while using their equipment, workers and staff to finish the job. This resulted in a costly arbitration case in which Thomas Higinbotham of the Victorian Railways awarded the contractors fair compensation for their work and loss of profits. 

In taking over the contract for being behind schedule, the government was acting through Fitzgibbon who had been appointed Chief Engineer and thus supervising the construction work. Fitzgibbon's contract provided for him to undertake the detailed survey and supervision work. Both Fitzgibbon and Peto, Brassey and Betts brought a number of well qualified engineers to Queensland who were to provide valuable expertise when they decided to stay in Queensland. 

Sir Charles Fox recruited railway staff in Britain who were offered attractive terms to immigrate. This provided Queensland Railways with a nucleus of experienced railwaymen and the basis for local training and recruitment. 

The government eventually fell out with Fitzgibbon and he sought and secured a termination of his contract. Roads Engineer H.T. Plews was appointed Engineer-in-Chief. Fitzgibbon was also the first Commissioner for Railways but his location at Ipswich proved inconvenient and the government appointed the head of the Lands and Works Department, A.O. Herbert to fill this role as well. The Chief Engineer, whether Fitzgibbon, Plews, Thorneloe Smith or Stanley remained the chief professional officer and for a number of years reported directly to the Minister. The Commissioner was only in charge of running trains. 

Politics has long dominated the operation of the State Railways in Australia. Throughout its history the staff of the Railway Department have never been sure if their objectives are economic or political. From all sides of politics they have been criticised for failure to operate at a profit, and at the same time expected to meet political objectives and operate and set charges in the interests of state development or to satisfy sectional interests or to provide a social service. 

Unfortunately this role was never clearly spelled out and so it lacked a clear understanding of how well it met its objective. The only clear annual statement was the financial result for which it usually received criticism. 

The original decision to build a railway was not justified because it was expected to be profitable, but because of its role in the economic development of the colony. This development role has been paramount and has only recently lost its importance when heavy road transport - subsidised by the state and by other road users in less visible ways - was allowed almost unfettered competition with rail.