All About Completion Bonding Companies

What is a Bonding Company?

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 these companies 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 financial instrument know as a "bond," to anyone who has a financial interest in the film. The bonding company is in turn backed by another insurance company, (hopefully not AIG!) for instance. If your production budget is 2 million dollars, the bonding company will provide a bond in that same amount to protect their investment. Simply stated, if the production is not completed, your investors can redeem the bond for cash, subject to certain 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 in a reasonable amount of time, within the approved budget, and loosely following the shooting script. This is a very important point. A bonding company representative once told me that all they really guarantee is that "…there will be five, 35mm reels of film in two cans with handles on top."

How does the bonding company do it's job?

Generally, bonding companies have people on their staff who are extremely knowledgeable about every aspect of production. Often they are experienced production managers, assistant directors or producers – so they know what production is really like. It's their job to know the cost of everything involved: the price of raw stock, motel room rental, catering, laboratory services, talent rates...you name it. Some companies compile information as they were the CIA! They might already know the abilities of every key person on the production. They may be aware that a particular name star has a drug problem or got in a fight with their previous director. I was quite shocked at a meeting with a bonding company when I discovered they knew too much about me! (How did they find out?) But, they can also steer you away from the wrong people and suppliers. So, their information can help you too.

When approaching a bonding company they will require you to provide a shooting script, detailed budget and production schedule. They may also require bios and credit lists of key members of the production staff. A word of advice: Don't even think of trying to hide something from them! They're too smart for that – they've seen every trick in the book. Be prepared to provide written proof of every estimate in your budget. If you can get raw stock at 31 cents a foot, they'll want to know from where and what the phone number is. Bonding companies are not in the habit of actually paying those bonds, so their contracts for completion go on, and on, and on…

In some cases, a bonding company will take complete control of your check book. Their boiler plate contracts give them this right, and you...as the producer or director...will be required to sign on the dotted lines. Once you're given the go ahead, they will track your progress on a daily basis and often require written reports. Representatives may also appear on the set to put just a little extra pressure on you. 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 Contingeny

You should assume the bonding company will contractually place many restrictions on you. The most significant one is a 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 creative 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, many costs of production must be paid up front before you even turn on the first 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. A star's pre-paid salary for instance, could be exempted. For most productions, these pre-paid costs may 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 ahead of schedule. The carrot and stick approach works well with bonding companies. A good starting point 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. 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). But there are others. Like anything, it pays to shop around.