Re: Does this sound Honest/legal to you?
Sounds like typical job justification by others to me. A good friend of mine is an electrical engineer consultant that used to do a lot of work for one of the local junior colleges. The junior college hired him directly for probably 15+ years. He knew more about their systems than they did.
And then one day the Big Dogs moved in and said they could only hire for "approved vendors". He went through all kinds of hoopla including a personal interview to get approved to do a job same he had been doing all along. By the end of the interview, the Board agreed that he was well qualified to do the job. In fact they were a bit embarrassed of what they had put him through. Today he is doing the same job he did before but adds a "surcharge" to his invoices to cover the extra time it takes them to process his payment.