How do you avoid favoritism and personal relationships from affecting grading? Universities do encourage close cooperation between students and faculty. However, how does one prevent close working or personal relationships from affecting grading, so that it can be carried out fairly and uniformly? Is there a method of avoiding "playing favorites" with students a faculty member has a "closer" relationship with than others?
I would suggest to design a rubric to assess the work of students. The design of a rubric is difficult and may require a lot of work for the teacher, but it will isolate the grading process from other factors. Here you can find a book about rubrics.

One of the advantages of using a rubric is that students can easily observe how their work is going to be evaluated. Another advantage is that teachers can easily apply the same criteria across all the work to be graded.