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 Completion Restriction

    A type of clause, seen most often in municipal bond indentures, ...
  2. Project Finance

    Defined by the International Project Finance Association (IPFA) ...
  3. Progress Billings

    A series of invoices prepared at different stages in the process ...
  4. Scope

    A project management term for the combined objectives and requirements ...
  5. Loan-To-Cost Ratio - LTC

    A ratio used in commercial real estate construction to compare ...
  6. Performance Bond

    A bond issued to one party of a contract as a guarantee against ...
Related Articles
  1. Personal Finance

    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. Personal Finance

    10 Ways to Improve Cash Flow in Construction

    Improving cash flow in construction requires some sector-specific strategies.
  3. Financial Advisor

    A Guide on the Risk-Adjusted Discount Rate

    When a project or investment faces higher amounts of risk or uncertainty, it may be appropriate to utilize the risk-adjusted discount rate.
  4. Investing

    An Introduction To Capital Budgeting

    We look at three widely used valuation methods and figure out how companies justify spending.
  5. Small Business

    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.”
  6. Personal Finance

    Common Interview Questions for Project Managers

    Discover the basic skills needed for a position as a project manager along with common interview questions used in applying for such a position.
  7. Investing

    Invest In Hollywood With The Film Futures Market

    It's been 10 years in the making, but you can now bet on which movies will hit it big, or which will flop.
  8. Investing

    Will Your Home Remodel Pay Off?

    Some renovations will mean a bigger sale price on your home, while others will just cost you.
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 do companies calculate the estimated duration of a new project?

    Learn about some of the common methods used by companies to estimate the duration of a new project, including those with ... Read Answer >>
  3. How do you use the profitability index rule when scoping out a project?

    Understand the parameters of the profitability index rule and how this rule is used in corporate capital allocation to determine ... Read Answer >>
  4. 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 >>
  5. What are the differences between percentage of completion and the completed contract ...

    Learn the advantages and disadvantages businesses face when using either the percentage-of-completion or completed contract ... Read Answer >>
  6. How do you use internal rate of return to calculate a capital budget?

    Learn about how the internal rate of return is used in the creation of a capital budget along with net present value and ... Read Answer >>
Hot Definitions
  1. Stagflation

    A condition of slow economic growth and relatively high unemployment - a time of stagnation - accompanied by a rise in prices, ...
  2. Notional Value

    The total value of a leveraged position's assets. This term is commonly used in the options, futures and currency markets ...
  3. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  4. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  5. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  6. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
Trading Center