Bonding company

Bonding company
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Methods and techniques

The bonding company is a financial entities such as a bank or insurance agency, which assumes the risk of a surety bond obligee by guaranteeing payment on the bond in the event of default. It also provides other types of bonds on behalf of the obligor to the obligee. Usually, the bonding company will make a detailed review of the future budget, main contracts and producer’s achievements. Director have to complete projects according to the budget and everything have to be done on time. The head of the bonding company may ask for growth in the budget if the projected cost for the project is too high[1].

Completion bond[edit]

The bonding company offer insurance, which is called a completion bond or a completion guarantee for free, usually a certain percentage of the budget. To produce various large projects like for example a film, producers needs enormous amount of money. When such project is made outside of the establishment mainstream studio, its financiers need a form of insurance, which guarantees that the project will be completed and delivered to the producer on time. When applying for such insurance, it is necessary to provide the following materials:

  • the budget
  • the script
  • the schedule
  • cash flow
  • detailed information about investors
  • financial commitment to the project.

Bonding company evaluate the most risky factors associated with the proposed scenario. A minimal production risk occurs when the producer has already finish the project and fulfill his duties. This is the most desirable situation. The most important part of producer’s work is to deliver shows on time and on schedule. If he did not complete the responsibilities, the risk of project failure is much higher. When the packet is approved for consideration, the bonding company make an appointment with the directors of production in order to further evaluate the project's viability. After the initial assessment has been made, it is certain that the binding company demands adjustments to the budget and schedule[2].

Positive and negative impact[edit]

Completion bonds may have positive and negative impact to justify the bonding company’s seizing control of the project. If the project is over budget or few days late, then the bond may allow the bonding company to take over the project. If the project protected by bond made a success, then after finishing, the amount agreed in the presale of rights comes due and is used to pay off initial lender and the bond is never existed[3].

Bonding companies requirements[edit]

Bonding companies review a subcontractor's finances prior to providing a bond very thoroughly. If a partner is unable to provide a sufficient bond for project, this is very important information that this company may have financial difficulties. It means that the bonding company does not believe that the subcontractor is in a stable financial position and finish the project on time. A main management tool are bonds. It must be purchased immediately after a subcontract is signed and the general contractor must follow up to check whether the bond was quickly obtained[4].

In many bonding companies it is required[5]:

  • to update both company and project status information on a regular basis by the principal
  • conduct its own investigation
  • updating this investigation at any time.

Footnotes[edit]

  1. Scott M.D. 2019
  2. Winder C., Dowlatabadi Z. 2011
  3. Scott M.D. 2019
  4. Smith J.G., Hinze J. 2010
  5. Schwartzkopf W.

References[edit]

Author: Weronika Wielochowska