Ed,
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We had a similar problem recently when we were awarded a NASA grant. NASA seemed to want to control how we managed our team. There were many conditions that went with the money.
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I think your problem is an isolated incident. Has Huntsville ever sponsored teams before?
We are sponsored by JPL and other than having to meet certain deliverable requirements they have little say in how the team is run. That may be because we compete against other teams by writing proposals before the grants are awarded. The proposal includes a management section. So you describe how the team is going to be run before you get the money. If they don't like it you don't get the award.
The deliverables I know about are:
1) Show up with a robot and compete in FL.
2) Submit a Chairman's Award entry.
3) Submit an essay from each student (adults are optional) on how the FIRST experience influenced them.
Nothing unreasonable here. They may be some other administrivial requirements like cost accounting or something that I don't get involved with. Again nothing we consider unreasonable, and for various reasons we are more sensitive than most teams about "unwarranted government intrusion".
We have one member of JPL technical staff on the team. But his voice carries no more weight than any other technical guy.
Just our experience,