Any process of bargaining between parties with different interests in its outcomes creates some risk that they will not be able to agree and, accordingly, that they will break off negotiations. Where the parties are able to select other bargaining partners with whom they can reach agreement, failure to agree presents no problem. Where, as in the case of bargaining between employers and workers, this option either is not open or open only at considerable cost to both parties, it is generally considered that some alternative course of action which avoids breakoff or breakdown needs to be available to the parties. This mechanism may take one of three forms, which differ in the amount of discretion assigned to the third party.

Conciliation is a method of resolving differences by involving an impartial third party in the actual negotiating process, the objective being to assist the parties in exploring other methods of resolving their differences and to arrive at an agreement which accords with their values and interests. Of the three methods, this allows the parties the most discretion to decide the issue for themselves on their own terms.

Mediation is a method of achieving the same result but where an independent third party is either required by law or requested by the parties to make one or more recommendations on the way in which the difference might be resolved, leaving the parties some discretion to decide the form that any resolution should take.

Arbitration is a method of resolving differences or disputes between two (or more) parties over the establishment, interpretation or application of the terms and conditions of a contract. It involves an independent third party who is either required by law or requested by the parties to make an award on the disputed issue(s) after considering the parties' evidence and arguments.

These mechanisms are often seen to provide an alternative method of resolving disputes to those found in the courts of law, where similar processes are often followed. Mediation and arbitration, for example, are being adopted increasingly either to settle disputes which do not lend themselves to resolution in terms of right and wrong (in which area the courts are well-equipped) or to take advantage of their greater informality and lower cost. All three mechanisms offer distinct advantages for cases where disputes are concerned with the interests of the contending parties and where the constraining framework of law is at best replaced by a framework of convention developed largely by the parties themselves.

George F. Thomason