ONE of Quebec's business success stories of the last two decades has fallen to high debt, overexpansion, and just plain ambition. But remnants have become part of a new engineering giant based in Montreal.The failure of Lavalin Inc. - which is now being broken up to cover its debt - is a blow to the pride of "Quebec Inc.," the name given to the successful mixture of government and business that has fueled this French-speaking province's entrepreneurial revolution. Lavalin Inc., founded by engineer Bernard Lamarre, made its name and its fortune handling engineering projects in Quebec, especially the giant hydroelectric projects in northern regions. The firm built on its success and won bids as varied as hydroelectric projects in South America and the subway system in Bangkok. Then Mr. Lamarre expanded into running industries instead of building them; those ventures included oil refining, experimental mass transit, and even aircraft leasing. Lavalin Industries Inc., a publicly traded firm that holds the industrial assets, lost $22.9 million (Canadian; US$19.9 million) in the nine months ended May 31, compared to a loss of C$2.3 million for the same period a year earlier. "The failure of Lavalin can be attributed to Bernard Lamarre's ambition," said a Montreal investment banker who asked not to be named because of his business relations in the local financial community. "He certainly shouldn't have got involved in aircraft leasing; in retrospect, of course, he should have stuck to what he knew best: engineering." Banks that lost money in the collapse of Lavalin included the National Bank of Canada, the Toronto Dominion Bank, and Credit Agricole, the French Bank. The company is selling assets to cover its debt of C$228 million. "In two or three months there will be no more Lavalin Industries," said its president and chief executive, Jacques Lamarre. The share price on the Montreal Stock Exchange is 19 cents, down from a 52-week high of C$3.25. "We think the shares could eventually be worthless," said Lamont Gordon, chairman of Sprott Securities of Toronto, which specializes in finding short positions for its clients - that is making money by selling the shares of overpriced firms. THE engineering assets of Lavalin were bought recently by its arch-rival, SNC Group Inc., to form SNC-Lavalin, the largest engineering firm in Canada. The president of the new firm, Guy Saint-Pierre, said he expects engineering sales of C$2 billion in 1992. "Our market now is the entire planet," Mr. Saint-Pierre said. With more than 6,000 employees, the new firm will be one of the world's top five engineering firms measured by assets, he added. SNC-Lavalin is involved in some of the following projects: * Quebec hydroelectric projects. * The Three Gorge hydroelectric project in China. * A 700-megawatt nuclear reactor in South Korea. * Two aluminum smelters in Quebec, each worth more than C$1 billion. The success of SNC-Lavalin hinges on its landing major Canadian contracts, including those at the planned Great Whale Hydroelectric project in northern Quebec. The C$12.6 billion scheme is threatened by environmental groups and the Cree Indians who live there. The firm also needs contracts from the Hibernia offshore drilling program in the waters off Newfoundland. The new firm will remain firmly a part of "Quebec Inc." No clearer example of the easy cross-over between business and government could be seen than the photos of a new executive team in Montreal newspapers. The major players include Saint-Pierre, a former cabinet minister in a Liberal Quebec government, and Yves Berube, a former minister in the separatist Parti Qucois administration in Quebec who moves into the new firm from the presidency of Lavalin. And what of Bernard Lamarre, the man who built this engineering powerhouse? He will stay on at SNC-Lavalin, but as a part-time consultant.