Negotiating a $1.37M Construction Contract
How the contract works, what value engineering means, and why we split the savings 65/35
Finding Koala-T Construction
After talking to several general contractors, I picked Koala-T Construction. Morgan Lyew leads their preconstruction team. He stood out for three reasons: detailed budgets, clear communication, and experience building multiple ADUs in San Diego.
How the Contract Works
We signed a Cost Plus Fee with Guaranteed Maximum Price (GMP) contract on January 13, 2026. Let me explain what that means in plain English.
Cost Plus Fee means I pay the actual cost of materials and labor, plus a fee to the contractor. I see every receipt.
Guaranteed Maximum Price means there's a cap. No matter what happens, I won't pay more than the agreed maximum.
| Contract Detail | Amount |
|---|---|
| Maximum price (GMP) | $1,367,346 |
| Contractor fee | 5% ($65,112) |
| Construction time | 30 weeks (~8 months) |
| Savings split | 65% to me / 35% to contractor |
That savings split is important. If the project costs less than the maximum, we share the leftover money. That gives the contractor a reason to save money without cutting corners.
Cutting $94K Through Value Engineering
Before we signed, we worked together to cut $94,000 from the budget. This is called value engineering -- finding ways to spend less without hurting quality.
Some examples:
- Simpler landscaping that still looks good
- Swapping materials for cheaper ones that work just as well
- Smarter framing design
- Buying some appliances ourselves instead of through the contractor
This wasn't a fight. Morgan suggested options for each item. We talked about trade-offs. We agreed on cuts that saved money without making the homes worse.
Where the Money Goes
| Category | Cost | % of Total |
|---|---|---|
| Site supervision | $172,940 | 12.6% |
| Wood framing | $169,916 | 12.4% |
| Electrical | $118,850 | 8.7% |
| Concrete foundations | $118,040 | 8.6% |
| Landscaping | $109,760 | 8.0% |
These five items make up half the budget. The rest is spread across 30+ smaller items like plumbing ($109K), stucco ($70K), drywall ($50K), and shower doors ($4K).
How It Held Up
The real test of a GMP contract isn't the day you sign it -- it's whether the number holds once the walls are open and the surprises start. Ours did.
| Milestone | Status |
|---|---|
| Early progress (Feb 2026) | ~10% complete, 0 change orders |
| First loan draw (through Apr 30, 2026) | ~52% complete, 0 change orders |
| Construction | Completed July 2026 |
We reached the halfway point of a $1.37M build with zero change orders. On a project this size, that's rare -- and it's not luck. It's what good construction documents and a line-item budget buy you: when the plans answer the questions before the framers ask them, the surprises that blow up a budget never happen. The GMP cap gave me a ceiling; the design and the budget kept us from ever getting near it.