No, it's not normal.
Thst grant application was ambiguously worded. It repeatedly said it was for “the Internet”. It reads that “today, commercial search engines dominate search engine use of the Internet, and they’re employing proprietary technologies to consolidate access to the Internet’s knowledge and information. Their algorithms obscure the way the Internet’s information is collected and displayed”.
How on earth would an internal search engine help in this regard? And why is this wording so broad?
The kicker is the line in the grant that “Knowledge Engine by Wikipedia will be the Internet’s first transparent search engine, and the first one engineered by the Wikimedia Foundation.”
If I was to read that grant application, I'd be expecting an Internet search engine. Lila and the BoT, including Jimmy Wales, says that it never was.
If that's the case, as I said in a comment on a recent blog post by Lila, then the only conclusions that can be come to are:
A. The Knight Foundation were mislead as to the purpose of the grant application,
B. Someone, or multiple people, within the BoT of the WMF were not telling the truth, or
C. This grant application was put together by someone who was incompetent.