[Al Skierkiewicz]

Ben,
The lap indicator is attached to a rubber stopper that is mounted to the flag. You will be given the flag with the indicator attached and you will then insert same into your flag holder and connect to your provided PWM cable.

As for the holder see this...
<R17> ROBOTS must use one of the two FLAGS provided at the event
queuing location to display their ALLIANCE color (red or blue). The
FLAG shall be held in a flag holder mounted on the ROBOT. The
only acceptable flag holder is a 12 inch long piece of 1/2” (nominal)
Schedule 40 PVC tube. The tube must be a single, contiguous
piece, capped with a commercial PVC pipe cap cemented at the
bottom end. The tube must not have any “lightening holes” or other
modifications other than mounting holes, paint, or other decorative
surface finishes.

I read that as "mounting holes" are acceptable. R18 specifies that a 2" radius around the top of the flag holder must be maintained for the lap indicator.

As to the pneumatics vs. motor, this is a long standing debate and there is no good answer. All things being equal, if this was the only thing you needed air for, I would tend to go with a motor. If you need air for other parts of your design, then it would require some additional thought on your part as to what your actual requirements might be.