Completion bonds are contractual agreements whereby producers pay a fee to completion guarantors, who issue a guarantee that the film will be completed in accordance with the script and delivered on schedule to distributors. For independently financed films, investors often want the film to have a completion bond before they are willing to invest in the film. Completion bonds essentially protect the investor, by ensuring that they will be repaid the film’s financing after the film is delivered to the distributors.
If the film encounters problems during the production process, the completion guarantor has a few options:
- First, it can choose to loan money to the producer to complete the film;
- Second, it can choose to take over the production of the film or enforce more administrative controls over the film’s finances to ensure that the film is completed; or
- Third, it can choose to abandon the film and repay the investors the cost of financing.
Reviewing the film’s budget and overseeing the film’s cash flows
The completion guarantor reviews all documents related to the budget of the film and assesses whether the budget is able to cover all necessary expenses. If any items are omitted or the completion guarantor is of the view that the budget is insufficient, the completion guarantor will request that the budget be revised.
The completion guarantor will also have oversight over the production bank account’s schedule of disbursements. Some completion guarantors may insist on being co-signatories to the production bank account.
Delivery of film on time
The completion guarantor will also be involved in the day-to-day production of the film. The completion guarantor will put the cast and crew on notice of its expectations by requiring them to sign off on production schedules. By reviewing the daily production reports, the completion guarantor ensures that the production will be delivered on time. The completion guarantor also reviews the distribution agreement to ensure that it is able to deliver all the various items to the distributors within the schedule.
If the film runs into problems, the completion guarantor may implement a “soft takeover” by exercising greater administrative controls over the production of the film. The producer will have to implement the suggestions of the completion guarantor in view of placing the film back on schedule. The completion guarantor may also offer to provide a loan to the producer (subject to its recoupment against the film’s revenues) or suggest alternative financing options to cover the production cost.
Exclusion of liability
In the agreement, the completion guarantor would exclude its responsibility over certain matters such as the producer’s inability to acquire the underlying rights to the film, the artistic content of the film, and any contractual breaches by the distributor or investor.