Here both the Contractor and Guarantor undertake to pay the Employer (i.e. the one giving out the contract) the amount guaranteed upon his demand without contestation. Usually the contractor provides a collateral but where this is not available, he/she signs an indemnity agreement.  This guarantee is provided to ensure maximum performance from the contractor under the terms and conditions of the contract.  Where performance is below standard and the contractor is unable to rectify the defects, then the guarantor pays the full amount guaranteed to the employer and then demands a refund from the Contractor through the indemnity agreement he signed or the courts.