Completion Bond

DEFINITION of 'Completion Bond'

A financial contract that insures a given project will be completed even if the producer runs out of money, or any measure of financial or other impediment occurs during the production of the project. Completion bonds are used in many industries, including major films and construction projects.

They may be part of a mortgage financing deal, and serve to protect both the mortgagor and mortgagee. A third party financier, a completion guarantor company, is typically brought in to provide the financial backstop in the event that original financing is insufficient to complete the project. Also known as a completion guarantee.

BREAKING DOWN 'Completion Bond'

Completion bonds are often standard pre-project material for any large construction project or complex project involving large sums of money and/or multiple investors. They are a longstanding tradition in the entertainment business, where many variables can come into play which may affect the completion of a large movie project.

A third party guarantor will assess the risk to the projects completion and collect a premium for insuring the particular risks to a given project being completed on time, and on budget. Investors become much more likely to get involved, knowing that the project will be completed enough to be sold so they can recoup their investment.

RELATED TERMS
  1. Project Finance

    Defined by the International Project Finance Association (IPFA) ...
  2. Percentage Of Completion Method

    An accounting method in which the revenues and expenses of long-term ...
  3. Scope

    A project management term for the combined objectives and requirements ...
  4. Progress Billings

    A series of invoices prepared at different stages in the process ...
  5. Critical Path Analysis

    A project-management technique that lays out all the activities ...
  6. Loan-To-Cost Ratio - LTC

    A ratio used in commercial real estate construction to compare ...
Related Articles
  1. Managing Wealth

    Project Manager: Job Description & Average Salary

    Discover more about the specific tasks that project managers are responsible for and the average salary that can be expected in such a position.
  2. Professionals

    What Exactly Do Project Managers Do?

    While supervision is one important part of the job, a lot more goes into project management than just watching everyone work.
  3. Financial Advisor

    What's a Hurdle Rate?

    Hurdle rate has two meanings. In the business world, a business typically makes a decision on a capital project based on the net present value approach. To determine the net present value, the ...
  4. Investing

    Understanding Net Present Value

    Learn how this value is used to determine the worth of a project.
  5. Investing

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  6. Investing

    What is a Feasibility Study?

    A feasibility study analyzes a company’s ability to complete a project.
  7. Markets

    Capital Budgeting

    Capital budgeting is a planning process used by companies to evaluate which large projects to invest in, and how to finance them. It is sometimes called “investment appraisal.”
  8. Personal Finance

    Will Your Home Remodel Pay Off?

    Some renovations will mean a bigger sale price on your home, while others will just cost you.
  9. Investing

    Capital Budgeting: Which is Better, IRR or NPV?

    Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense.
  10. Markets

    Explaining PFIs and PPPs

    Public-private partnerships (PPP) and Private Finance Initiative (PFI) are two business relationships between government agencies and private businesses.
RELATED FAQS
  1. Why is a bank guarantee important in a long-term project contract?

    Understand what a bank guarantee is and learn why it is so important to the risk and safety of a long-term project contract Read Answer >>
  2. How much debt is too much when calculating capital budgeting?

    Learn how companies determine how much debt is acceptable when funding a new project by using the net present value to estimate ... Read Answer >>
  3. How do you calculate costs of capital when budgeting new projects?

    Discover how a company should estimate its costs of capital when budgeting for a new business project using the weighted ... Read Answer >>
  4. How do you use discounted cash flow to calculate a capital budget?

    Learn how discounted cash flows are used in creating capital budgets as a part of the net present value and internal rate ... Read Answer >>
  5. Do you discount working capital in net present value (NPV)?

    Learn why changes in net working capital (NPV) should be included in net present value calculations for analyzing a project's ... Read Answer >>
  6. What are the differences between the installment method and percentage of completion ...

    Learn how businesses recognize revenues and report them under the installment method and percentage-of-completion method, ... Read Answer >>
Hot Definitions
  1. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  2. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  3. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  4. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  5. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  6. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
Trading Center