I came up with the following, potential, alternative method of determining surprise between two parties of characters before an encounter. It still needs to be play-tested.
To determine if one character or party of characters surprised another, the GM may call for an opposed roll. The characters attempting surprise roll Reflexes and Sneaking, whereas the characters resisting surprise roll Perception and Search. The pooled results of all characters in the initiating party, the ones attempting surprise, are compared to the pooled results of all characters in the opposing party. If the initiating party’s result is higher than the opposing party’s, then the initiating party has surprise. This means that each character in the initiating party may take one free action before the Generate Initiative step.
If neither party is attempting surprise, the GM may call for two rolls, each party attempting passive surprise on the other. If both succeed in attempting surprise, no surprise occurs, and the next step, Generate Initiative begins. If neither succeed, likewise no surprise occurs, and the next step begins.