Bonds protect the financial position of your project's investors and as a result helps assure them that they will see your project completed on schedule, on budget, and delivered to its primary distributors.
One key part of a completion bond is called the Strike Price. Completion bonds always set a strike price defining the expected total cost to produce, complete and deliver the project. These costs include the following:
- Contingency allowances, allowing some wiggle room if there are cost overruns or unexpected expenses. Contingencies are typically 10% of the estimated cost of the production.
- Budgeted above-the-line and below-the line costs including possible union fringes and insurance costs.
- A bonding premium paid to the underwriter.
A lot goes into a Completion Bond. It also serves to help you organize your thinking. You can see from this abbreviated list that exercising leadership requires a lot of attention to detail, not just the broad-picture vision.
Completion bonds depend on a detailed evaluation of the risk factors of your production.
The process includes reviews of your production elements and, often, meetings with members of your production team.In many ways, this process resembles the information gathering you should perform when you analyze and report the risk factors for your insurance.
Completion bonds involve significant paperwork, including a Completion Guaranty (an agreement form that specifies all the terms for the Bond between the project's investors (the "Beneficiary") and the company underwriting the bond; and a Completion Agreement (a similar agreement form between the Producer (that's you, my friend) and the company underwriting the bond). If any inconsistencies appear in either relationship, you then enter into an interparty agreement to resolve those differences. It's typically prepared by the main financier's lead legal counsel.
Other documents involved in creating a completion bond include:
- Picture Information (defines the scope and details of your production, including items such as Title, type of film (Live Action or Animation, for example), language or languages, Genre, total budget, expected schedule, post-production calendar and other details.
- Proof of Funds (a short summary listing and describing each financial backer committing to advance production funds.
- The screenplay or screenplay.
- Detailed production information (Cast/crew/contact lists, storyboards, insurance certificates, production bank accounts, and much more).
- Legal Information including the distribution agreement, fully signed Director Agreement, all financier information, insurance certificates, production bank accounts, and Chain of Title describing all content rights and agreements relating to the underlying rights of the Film production, including a Copyright Report.