Movie Completion Bonds

All About Film and Video Completion Guarantee Bonds

Aug 7, 2009 John Thomas

Completion bonds are a necessary evil for many filmmakers, but few really understand the purpose of a completion bond, why they are required and how they can help you.

A motion picture or television production bonding company is really a specialized insurance company. Whereas the typical insurance company might insure your car or your life, these companies insure your production. But they don't protect the cast or the equipment. In fact they don't even insure you! But they do insure your investors, a bank, the distributor, a labor union, or anyone else who has a financial interest in the outcome of your production. They only insure for one thing: the completion of your film. So the bonding company should be properly called a Completion Guarantee Company.

Why Must I Have a Completion Bond?

It's not so much that you need to have a completion bond, but your financial backers may insist on it. For a fee and other conditions, the bonding company will provide a "bond" to anyone who has a financial interest in the film. Simply stated, if your production is not completed, the bonding company will either step in and finish the film, or your investors can redeem the bond for cash, (subject to numerous terms and conditions of course).

The bonding company does not guarantee the financial success of your film nor do they guarantee your film will be even watchable! All they guarantee is that the film will be completed with a specific cast and loosely-based on the shooting script. A bonding company representative once said that all they really promise is that "…there will be five, 35mm reels of film in two shipping containers with handles on the top."

How Does the Bonding Company Do Its Job?

Bonding companies have people on their staff who are extremely knowledgeable about every aspect of production. Many are former production managers, assistant directors or producers – they know what production is really like. It's their job to know the cost of everything involved: the price of raw stock, motel rooms, catering, laboratory, talent rates...you name it. They might already know the abilities of every key person on your production. They may be aware that a your star has a drug problem or got in a fight with their previous director. They can also steer you away from the wrong people and bad suppliers.

So, their information can help you too.

The bonding company will require you to provide a shooting script, a detailed budget and a production schedule. A word of advice: Don't even think of trying to hide something from them – they've seen every trick in the book! Be prepared to provide written proof of every estimate in your budget. Bonding companies are not in the habit of actually paying those bonds, so their contracts for completion go on, and on, and on. Several hundred pages is not unusual.

In some cases, a bonding company will take complete control of your check book. Once you're given the go ahead, they'll track your progress on a daily basis and usually require written reports. Don't forget, they can even fire you too! When something goes wrong, the producer and director are at the top of the "hit list."

The Cash Contingency

The bonding company will contractually place many restrictions on you. The most significant one is the standard requirement that you put aside an amount equal to 10% of your entire budget…in cash. If your budget is 6 million, you'll have to add, (or subtract) another 600K and put it aside as a contingent cash reserve. This cash contingency requirement has been around a long time and is an inescapable fact of filmmaking. However, there are ways to deal with this.

For instance, there's no reason to set aside a cash contingency for something which has already been paid. Many costs of production must be paid up front before you even turn on the camera. If the bonding company feels comfortable with your budget, and they trust you, they may agree to exempt these pre-paid costs from the contingency calculation. For most productions these up front costs can amount to as much as 50% of the budget.

As your filming moves toward completion, you may also convince them to gradually release portions of the contingency for use in other areas not yet completed. On the other hand, the bonding company may require the producer and/or director to defer their own fees until the production has reached a certain state of completion.

The Bonding Company's Fee

The "standard" fee is 6% of your total budget. In reality this percentage is quite negotiable, especially when you've reached a certain milestone and are under budget and on schedule. A good starting point, (negotiated in advance) is a reduced 4% bond fee if you come in under budget, and on schedule. Conversely, the fee would go back to 6% (or more), if you don't.

How Do I Contact a Bonding Company?

Completion bonding companies are located all over the world. Some specialize in covering specific geographic areas, but many are simply satellite offices of larger companies. Among the more well known are: Film Finances, Inc. (http://www.ffi-web.com), and International Film Guarantors (http://www.ifgbonds.com).

Like anything of this nature, it pays to shop around.

The copyright of the article Movie Completion Bonds in Film/TV Industry is owned by John Thomas. Permission to republish Movie Completion Bonds in print or online must be granted by the author in writing.
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