PPPs are a derived procurement mechanism with roots in privatisation theory, outsourcing and the liberalisation policy initiatives of the 1980s. However, the idea that the private sector could effectively deliver public goods on behalf of the state was first recognised in the time of Constantine and there is clear evidence of private provision of transport and utilities throughout the long tenure of the Roman Empire. More recently, European powers in the 17th and 18th Centuries used the Royal Charter to vest authority in private organisations such as the East India Company and the Hudson Bay Company to administer colonies in the Far East, North and South America.
In the 1980s, economies in most developed countries were characterised by high levels of public participation in the economy, high levels of state debt and deficits, stagflation and low levels of economic growth. The response of government was to reduce public debt, downsize government, privatise government business enterprises, improve microeconomic performance and outsource the delivery of public assets and services. Private capital was an appealing substitute to state investment and in the early 1990s, procurement models based around build own operate transfer arrangements became more common for the delivery of networked public assets such as roads, water and sewerage plants, pipelines, ports and public buildings.
These arrangements were generally input-specified stand-alone assets for periods of 15-25 years. In 2001, the United Kingdom introduced its Private Finance Initiative which eventually came to consolidate a number of procurement methods including PPPs. The Victorian Government introduced its Partnerships Victoria program about the same time and policy variants of these approaches were eventually adopted by the commonwealth, state and territory governments in the following 6 years. Victoria has employed PPPs for more economic and social infrastructure projects than any other Australian jurisdiction and the Partnerships Victoria policy template is widely used as a best practice template in developing economies in Asia, the Pacific and Africa.
Queensland employed build own operate principles in several early projects including the Sunshine Coast Motorway and Brisbane's proposed light rail project. However, the former was nationalised following a change of government in 1989 and the latter failed to move beyond the expression of interest stage. In 1997, Queensland introduced a new policy framework titled Private Sector Involvement in Public Infrastructure and Service Delivery and in 2002, the Department of State Development set up an Infrastructure Partnerships Task Force. PPP policy guidelines broadly based on the Partnerships Victoria model followed. However, few projects were approved until the Southbank Institute PPP in 2004. In 2006 the Brisbane City Council adopted a PPP procurement approach to the north-south by pass tunnel and the State Government followed with the Airport Link motorway in 2008. The slow progression from policy framework to project initiation led to a perception that Queensland's policy settings and institutions favoured state provision of infrastructure and, amongst the Australian states as recently as 2006, Queensland had the lowest level of private participation in the infrastructure sector.
In 2007, PPPs accounted for around 12% of state procurement in most developed economies. In Australia, PPPs account for less that 6% of capital works expenditure by Australia's commonwealth and state governments.10
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10 Around 10% of capital works in Victoria and less than 7% in the other states.