The decision marks a significant down-rating for the firm, and has led to fears that its distinct identity will be lost.
The move also indicates clients' waning enthusiasm for the construction management movement, which was brought in from the USA in the 1980s.
Schal's project management side will be merged with Carillion's TPS Consult, and its construction management activities will be absorbed into Carillion Building South.
Stanhope director Peter Rogers predicted that the restructuring would lead to the demise of Carillion's construction management activities. He said: "I do not think construction management has ever survived in a construction division."
A Schal source said the decision could affect staff morale. He said: "The danger is staff will start leaving and they will not have any construction managers left."
But Carillion emphasised that construction management would continue, and would focus on early development and pre-construction advice.
In a statement, the firm said: "Our clients are increasingly looking for construction management with a guaranteed maximum price. By aligning closer to the building business, this becomes a reality."
The Schal name will remain. A Carillion spokesman said: "It will still trade as Schal. For the customer there will not be any difference."
One of Schal's rivals commented that the firm had failed to restore client confidence after two particularly troubled projects in 1999: the £220m Royal Opera House and the £25m Royal Court Theatre.
Rogers said: "It's a pity. Schal never quite made the translation of construction management from America to here."
Carillion first revealed the restructuring when it announced 400 job losses in September. A Carillion spokesman said any cuts at Schal would be in administration.
The shake-up, known as the Business Improvement Programme, is due to be completed early next year.
Paul Reeder, Schal managing director, will move to TPS Consult, where he will take over from managing director Steve Jessup, who has been appointed partner at cost consultant EC Harris.
Director Steve Child will continue as head of Schal Project Management and operations director Terry Chapman will head Schal Construction Management.