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We have a product manager, a project manager, a UI team lead and a contract UI designer.

Currently the designer is being paid from the product manager budget and all communication and design issues are under product manager supervision.

the output of the design goes to the R & D - UI team for development.

Is this the proper process for working with a designer?

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Having seen a number of contract meetings in the works, whomever has the most expertise in the area. You shouldn't care if someone's feelings get hurt because its "technically their job description." The person who is most knowledgeable should always be the one to negotiate the contract. Not only will this person have a better idea of how to explain things to the other parties, but they will be better prepared to see any obstacles that may arise. If all employees are truly equal in qualification, then go with the least busy, most senior person.

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