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Consultancy vs LSTK margins
What it is
Engineering consultancy sells design, project management and advisory as a fee for expertise, with almost no balance sheet employed. Lump-Sum Turn-Key contracts bundle design with procurement and construction at a fixed price, so the consultant becomes a contractor
The two have entirely different margin and risk profiles
Impact on industries
- Consultancy earns high margins on people rather than capital, with negligible working capital and no execution risk
- LSTK multiplies revenue per mandate, since the contract value includes materials and construction the consultant would otherwise never bill
- LSTK imports fixed-price execution risk into a business built on advisory - cost overruns, delays and liquidated damages now sit with the consultant
- Balance sheet and working capital requirements rise sharply, changing the financial character of the company
- The mix decision is the central strategic question for engineering consultancies, trading margin quality for revenue scale