Wallace Group loses contract, gains others

October 31, 2012

John Wallace

Spooked by a $1.1 million fine levied against a public entity due to mismanagement by the Wallace Group, agencies throughout the area are reevaluating relationships with the engineering firm and its owner, John Wallace.

Oceano Community Services District Board members, in the past critical of Wallace Groups’ practices at the sanitation district, were slated to review a contract Wallace Group made with the South San Luis Obispo Sanitation District in October. Before the meeting, Wallace sent a letter of resignation terminating his engineering contract with Oceano.

In the Oct. 15 letter, Wallace contends Wallace Group staff shortages prompted his decision to end the contract.

“We take our responsibility to the District very seriously and to that end we have temporarily assigned another engineer, Steve Tanaka, to assist me in handling day-to-day engineering needs of the District,” Wallace said. “Given my very active role within our organization and Steve’s existing workload, it will be increasingly more difficult for us to personally provide the time needed to provide the high level of service that the District deserves.”

In an odd twist, in late September, Wallace Group was vying for a two-year contract to serve as the Arroyo Grande’s on-call engineering consultant. Of the five that applied, city staff recommended the Wallace Group get the position.

In the contract, it states that the consultant shall maintain insurance coverage. However, if unable to do so, the city has the right to purchase the insurance and to pay the premium which can later be charged to the Wallace Group.

In late 2009, following reports of environmental abuses to local and state water authorities from sanitation district employees, the insurance company that carried errors and omissions insurance for Wallace said it was canceling his coverage.

Wallace failed to inform the district’s board of directors of the cancellation and did not acquire another insurance policy. As a result, district officials are working to increase charges and pass the cost of the $1.1 million fine to rate payers.

John Wallace is the chief administrator of the South San Luis Obispo County Sanitation District and also owner and president of the Wallace Group, a private engineering consulting firm located in San Luis Obispo.

The sanitation district, which serves the residents of the Oceano Community Service District, Arroyo Grande and Grover Beach, is governed by a three person board consisting of one representative from each community. Currently, Arroyo Grande Mayor Tony Ferrara and Grover Beach Councilman Bill Nichols vote in favor of maintaining Wallace as district administrator and allowing him to funnel engineering work to his company, the Wallace Group. Oceano’s representative Matt Guerrero is the lone voice requesting a review of Wallace and the Wallace Group.

In January, Grover Beach will have a new mayor with candidates contending they will no longer allow Nichols to stay on the sanitation district board which will likely result in Wallace Group’s termination as the district engineering contractor and Wallace’s termination as district administrator.

In June 2011, accusations first reported by CalCoastNews that Wallace has been funneling millions of dollars to his private engineering company without proper oversight were validated by a San Luis Obispo County Grand Jury report that found a conflict of interest. Then, a majority of the district’s current board decided the Grand Jury report was error-ridden and inaccurate.


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Tell me it’s not difficult to unravel the overlapping engineering oversight and various engineering projects associated with both the SSLOCSD and its member city CSDs?!@#

Oceano has a CSD, it also is a member of the SSLOCSD, so if it fires (or if it’s engineer “resigns”) it still has to have dealings with that same engineer & his firm @ the SSLOCSD. While this seems like the best course of action for a member city CSD, it places in stark relief the insidious degree of control that Wallace currently has over the region.

What people should understand about Errors and Omissions insurance is VERY important. It is mostly written on a “claims made” basis and not on an occurrence basis. Here is the significance of this.

Claims made ONLY pays for claims made while the policy is in force; it does NOT pay for ANY claims made after the cancellation even if the claim event date of loss occurred during the policy in force term. The only way to get coverage to extend on the claims made basis policy is to purchase something called “tail coverage”, meaning you buy coverage to extend a set amount of years to take care of those claims that are made after cancellation but during the in force policy term. That “tail coverage” cost generally 3 times the pricing of the last in force policy premium. So, if Wallace didn’t pay his premium and it cancelled, he likely didn’t buy the necessary tail coverage due to pricing. I’d bet there is NO tail coverage in force either. This means ANY and ALL claims that are made after the cancellation date will NOT be paid by the E&O policy, period. Just who do you think will be stuck with the claims paying now?

Any E&O policy that is placed on behalf of Wallace better have Retro coverage to pick up from the date the Wallace policy cancelled. Do we even know if the replacement policy was ever purchased by the City?

Interesting info. danika. I didn’t know that. Thanks.

I knew Karen would have the 411 on the details of E&O coverage.

I like the term “tail coverage.” It’s like “having your tail covered,” a more polite way of saying “having your *ss covered.”

Would the insurance information be available under the PRA?

What a freaking mess.

Mary, I have written E&O coverage for decades and shudder each and every time due to the claims made issues. We in the industry really do call it “tail coverage” for that very reason!

As far as the PRA, it just might be. The Certificates of Insurance provided are PRA. I have requested and received them from the PR City. Worth a shot. I’d really like to know who the insurance agency was on this one.

CCN, I recommend you dig a bit into whether or not the City purchased retro coverage or even any coverage to offset taxpayer expense in having to shell out for known claims.

This little move couldn’t have any connection to Oceano/Gurrero dispute where OCSD is now charging Wallace and the San Dist the former $4300 annual fee to the now $45,000 annual fee for sewer billing purposes?

Oh… boo hoo,hoo, Nicolls is not running again, or should we say nobody would vote for him if he did,….both of Grover’s mayor candidates have had their fill of the current SSLOCSD fiasco. Could it be that the days are now numbered for Wallace, the love child of Nicolls and Ferrara?

Stay tuned folks for the next episode of……….The Turds in our lives.

Oh, and as far as Wallace’s staff getting a bad reputation as a result of all this self inflicted stupidity, you would be correct. Wallace is know as the Scrooge of the CC when it comes to a pay check and benefits which has resulted in a higher than normal turnover rate. Now its crappy pay and a bad rap that has his “staff” running away like the Japanese did when Godzilla showed up LOL….

Re: the $4300 annual fee increased to $45,000 annual sewer-billing fee…

Do you mean, like blackmail? Either Wallace and the SSLOCSD pays up or Oceano fires Wallace?

Could be. I thought the idea of Wallace admitting he didn’t have enough qualified staff to do the work was a little bit too honest to be the truth. He may actually not have the staff, but I bet the real reason was that he knew he was going to be fired anyway.

It looks like Oceano is the first to try to get back some of the SSLOCD money Wallace availed himself to from the work he charged for but didn’t do, overcharged, and funneled to The Wallace Group.

There is also a good story in New Times about this resignation of sorts. Witnesses to remain confidential said the obvious is, he was fired. As far as the 10 fold rate increase, the article also said AG and Grover would most likely follow in Oceano’s foot steps. Guess we expect a healthy rate increase sooner than we thought.

The Wallace Group should be seriously investigated!

Wallace is making millions and laughing at his puppets

All the way to the bank. Good for Oceano! Questioning

This Wallace group everyone else should be too!

No surprise with Arroyo Grande. They have been allowing all kinds of interesting things to occur at city hall for decades like sexual harassment.

AG is not the only local government agency which allows sexual harassment to occur. I understand a case against NCSD has been accepted by the DFEH, and is currently in progress.

You don’t know what the heck you are talking about… Lets just make up what information we don’t know is apparently your policy. The claim on NCSD has nothing to do with Sexual Harassment. But please don’t let a little thing like the actual truth throw you off.

Soccermom, please tell us what the claim on the NCSD is involving if not sexual harrassment. You seem to have knowledge of it and we’d like you to share.

Soccermom, let me guarantee you, you REALLY don’t know what you are talking about.

MaryMalone… One of us does not make up information and then spread it all over the internet… guess which one of “US” that is… hummm…

Soccermom, it is possible that we can both be correct.

I believe there is a sexual harassment case against NCSD currently ongoing with the DFEH.

You believe that the claim against NCSD has nothing to do with sexual harassment.

The only way these two beliefs can be correct is if there are TWO cases currently against NCSD.

My, my. They have been busy over there, haven’t they?

Yaaaaaaaaaaaawwwwwwwwwnnnnnnnnnnnn, Boring……………Ever watch the news and see business as usual elsewhere? It so good here and the accused so open and approachable, why is this dirt so special. I can think of real ARGO people that don’t care about rules yet they remain in business and off the calcoast hit list.

Really, then name them and let the investigations begin!

QUOTING ARTICLE: “In the Oct. 15 letter, Wallace contends Wallace Group staff shortages prompted his decision to end the contract….”


In late 2009, following reports of environmental abuses to local and state water authorities from sanitation district employees, the insurance company that carried errors and admissions insurance for Wallace said it was canceling his coverage.

Wallace failed to inform the district’s board of directors of the cancellation and did not acquire another insurance policy. As a result, district officials are working to increase charges and pass the cost of the $1.1 million fine to rate payers.

The “staff shortage” claim may actually be the truth.

I wonder how many of Wallace’s best engineers have quietly been looking for new positions and then subsequently resigned from Wallace to go to new jobs?

One would think that a Wallace engineer’s employability has taken a beating over the last three years, especially the engineers who have been working on the SSLOCSD facility. One would think a contracting relationship with Wallace would taint the reputation of the Wallace staff.

One would also think it would taint the reputation of the local government agencies contracting with the Wallace Group.

However, many LAGs continued to contract with Wallace LONG after there were indications of problems.

Of special concern is the cancellation of the errors and omissions policy for Wallace’s administration of the SSLOCSD. The fact that Wallace did not inform the SSLOCSD (which would have at least given the SSLOCSD a chance to try to find its own E&O coverage for Wallace’s work.

Wallace put SSLOCSD and its ratepayers at considerable financial risk. So far it is over $1million in fines from the water board, but this does not cover the legal costs, nor does it cover costs for the water board’s investigation of the Wallace fiasco at SSLOCSD.

I wonder if the other LAGs contracting with Wallace knew that Wallace’s errors-and-omissions insurance provider had cancelled the SSLOCSD policy?

Was Wallace able to continue to get E&O coverage for his contracts with other LAGs?

If not, did he inform them of his inability to obtain E&O coverage? Or did he silently shift all the legal responsibility for contract-related problems onto the LAG contractee?

If Wallace did inform them, did the LAGs then obtain their own E&O insurance to cover Wallace’s contracted work?

If the E&O carrier cancelled the policy due to claims activity, it would be extremely difficult for Wallace to go out and get a new policy. The claims history will follow. If the policy cancelled because Wallace did not pay the premium, and there were claims, they would show up on a Loss Run report that ALL carriers require for commercial policies, even E&O policies. Wallace cannot hide his claims activity nor the lapse in coverage from the insurance companies. They know.

Wallace could be included under others E&O policies but his claims history would be a factor in pricing and acceptance.

I’d be very interested to know who the writing agency was for Wallace’s E&O policy.

They do have a staff shortage. Wallace has lost a huge percentage of his senior and junior engineering staff. Morale was killed there after a mandatory 10% pay reduction and many, many licensed staff have quit over the past 3 years or so. The Head of the Civil Engineering Department, the Head of the Survey Department, and many young promising engineers have moved on in recent years. The company is in a death spiral.

I think they are getting kickbacks

Are these people stupid? Or just dumb?