However, this process yields sheer lunacy, mostly because of the ridiculous ineptitude of every single person involved. ... she was flabbergasted, and explained that the evaluators job was to collude with the grant proposal submitter...

I think you're mistaken, and that most of the people involved in this process are, in fact, acting quite rationally and efficiently. They are merely solving a different problem. Your goal is to improve education; their goal is to channel as much money as possible into the pockets of everyone involved. The system you describe works quite well for that purpose.

You could argue that such a system is immoral, but it is eminently rational (at least in the short term), since it provides a way to acquire significant resources at very low risk. This is better than, for example, betting on the stock market or creating a startup.