A guarantee is not insurance. The payment to the guarantee company pays for the loan, but the principal remains responsible for the debt. The warranty is only necessary to reduce the time and resources that are used to recover losses or damages suffered by a contracting entity. The amount of the debt continues to be recovered through security issued by the client or, by other means, the taker. Guarantee bonds issued for construction projects are called contractual bonding obligations. A promoter (the obligated) seeks a contractor (the client) to execute a contract. Through a guarantee bond provider, the contractor receives a guarantee loan from a security company. If the contractor is late, the security company is required to find another contractor who enters into the contract or compensates the project owner for the financial damage suffered. In 1894, Congress passed the Heard Act, which introduced guarantee obligations for all projects funded by the Confederation. [Citation required] In 1908, the Surety Association of America, now the Surety Fidelity Association of America (SFAA), was established to regulate the sector, promote public understanding and confidence in the security industry, and provide a forum to discuss issues of common interest to its members.  SFAA is a licensed rating or consulting organization in all countries and is considered by the state insurance services as a statistical agent for reporting the experience of loyalty and security.
The SFAA is a trade association made up of companies that jointly write the majority of warranty and loyalty obligations in the United States. In 1935, the Miller Act was passed, replacing the Heard Act. The Miller Act is the current federal law that requires the use of warranties for federally funded projects. [Citation required] A guarantee is an independent and abstract obligation of the insurer or bank, separate from the principal obligation. This is a big difference from a guarantee and means that the surety cannot rely on the principal debtor`s exceptions on the basis of the underlying contract. Even if the underlying commitment is null and void, the surety must fulfill its commitment. It is only in the case of a clear abuse of rights (interpreted in a very restrictive manner) that the surety can refuse to pay the warranty duly seized. When do I need a contractual guarantee? Any federal construction contract valued at $150,000 or more requires guarantee obligations when a contractor makes an offer or as a condition for awarding the contract.