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Film Production
Completion Bond
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| A motion picture
completion guaranty is a written contract that guarantees a motion
picture will be finished and delivered on schedule and within budget.
The majority of films produced and fully financed by the major Hollywood
studios are, in effect, self-guaranteed. However, most independently
financed films, including many that are released and distributed by the
major studios, require a completion guaranty.
A producer usually secures a
completion guaranty for the benefit of the bank or other financiers who
agree to make the necessary production funding strike price available to
the producer. In general, a completion guaranty assures banks and
financiers that:
- The producers will
complete and deliver the film in keeping with the screenplay,
budget and production schedule that the bank or financiers
approved; or
- The completion guarantor
will complete and deliver the film in keeping with such
pre-approved screenplay and production schedule, and advance
such sums in excess of the pre-approved budget necessary to do
so; or
- In the event production
of the film is abandoned, the completion guarantor will fully
repay all sums invested in the film by the bank or financiers.
The “strike price,” or the
“production price” as it is sometimes referred, is the amount that the
completion guarantor believes will be needed in order to complete and
deliver the film. The strike price will generally comprise (1) the
budgeted “above the line” and “below the line” production costs,
including fringes and insurance costs; (2) interest and financing costs,
if applicable; (3) the completion guarantor’s fee; and (4) the
contingency allowance. For the completion guaranty to be effective, the
full amount of the strike price must be made available for production of
the film.
The first proceeds from
distribution will go to pay off any loss of the bonding company.
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| In order to determine
whether a proposed film project presents an acceptable production risk,
the completion guarantor will carefully examine and evaluate all
significant factors facing the production. This process begins with the
producer submitting to the completion guarantor the following main
elements: script, budget, shooting schedule, résumés of key crew and
descriptions of the project’s financiers and their respective financing
commitments. Generally, completion guarantors prefer that the film's
distributors and financiers approve these key elements before they are
submitted, however AFIG Entertainment is prepared to thoroughly evaluate them
beforehand. After reviewing
these main elements, the completion guarantor will want to meet with
members of the production team, such as the individual producer,
director and production manager, to obtain their views about the
production budget, shooting schedule and other production matters.
Sometimes, the producer chooses to adjust elements in light of
recommendations made by the risk manager. On the basis of these meetings
and the final materials submitted, the completion guarantor determines
whether the production can be produced, completed and delivered as
presented. If the submission is approved, the completion guarantor will
prepare the completion guarantee agreement and other necessary legal
documents.
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| Once the completion
guarantor determines that the production can be produced, completed and
delivered as presented, the producer will need to enter into a producer
completion agreement. In this agreement, the producer makes
representations and agreements concerning the production and grants the
completion guarantor certain rights to monitor and oversee the
production to ensure that the film will be completed and delivered in
accordance with the approved screenplay, budget, production and delivery
schedules. If there are conflicts between the rights and obligations of
the producer, distributor, completion guarantor and financiers under the
various contracts relating to the production and delivery of the film,
those parties will usually enter into an inter-party agreement to
resolve such inconsistencies. The inter-party agreement, if applicable,
is usually prepared by the principal financier’s legal counsel. The
producer will be asked to furnish certain required documents and
contracts to the completion guarantor for its review and approval.
The completion guarantor will require
the producer to include an adequate contingency allowance in the budget.
The contingency allowance may be a flat sum, but in most instances it is
a fixed percentage of direct production costs (i.e., all production
costs other than the contingency, interest and finance costs and the
completion guaranty fee). Various factors will determine what amount the
completion guarantor will find adequate for any particular film, however
the contingency is normally 10% of direct production costs. The
contingency allowance will be included in the strike price and
accordingly, the completion guarantor will only be responsible for cost
overruns after the financiers have made the contingency allowance
available to the producers to cover the budgeted cost of production,
completion and delivery. In certain situations, producers and others may
agree to defer all or part of their fees if needed to fund the
contingency allowance.
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| The completion
guarantor must be satisfied that the production stays within budget and
on schedule. Accordingly, the completion guarantor is given certain
rights to monitor and oversee the production of the film. The producer
will be required to furnish the completion guarantor with cost reports,
production reports, cost projections and other customary motion picture
measures of progress.
If at
any time the completion guarantor expects that the film will not be
produced, completed and delivered as promised, it may place a
representative at the production site. Or, usually as a last resort, the
completion guarantor may assert its right to “take over” some or all
aspects of the production in an effort to minimize the risk of incurring
liability under the completion guaranty. If a production is not
progressing within budget and on schedule, AFIG Entertainment will
strive to take a course of action that is least intrusive to the
creative process of producing the film. In most cases, the course of
action taken is determined only after meeting with the filmmakers and
there has been an open exchange of ideas leading to sound, collaborative
solutions.
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| Before determining
the fee for a particular production, the completion guarantor considers
several factors, including the director’s and production team’s
experience, the film’s budget and associated production risks. As such,
fees vary from film to film. Though sometimes a flat sum, the guaranty
fee is normally expressed as a given percentage of direct production
costs (i.e., all production costs other than the contingency, interest
and finance costs and completion guaranty fee).
Some completion guarantors charge an
up-front fee and agree to rebate a portion of it to the producer if no
claims are made after the film is delivered. This is sometimes referred
to as a “no claims rebate.”
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Long recognized for delivering superior service, St. Paul Travelers and
AFIG Entertainment support policyholders through its global
network of loss control and claim professionals. Our loss control
specialists have a deep knowledge of the entertainment business. They
identify potential hazards and help mitigate or prevent losses. They can
provide invaluable advice in fire prevention, disaster recovery
planning, equipment maintenance and premises safety.
The AFIG Entertainment & Media Division provides entertainment
insurance coverage on a worldwide basis for Motion Pictures, Television
and D.I.C.E. productions.
 Insurance Definitions |
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