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I always upgrade to level 3 as you simply get more engineers so while 2x1 are just as fast as a single 1x2, 2x2 are even faster. (as you have 4 engineers instead of 2).
Bugged in steam/vanilla, you can manually assign them to assist something outside the radius.
There is a bunch of really unfair things you can do that way, since they can not be targetted by enemies, unlike the construction bot upgrades on the ACU/SCU that can be targetted and cost resources to replace.
Edit: To answer the core question: Since upgrading a Kennel is cheaper than building one and the result is the same (you get 1 drone) upgrading is the better choice, taking the data from the linked wiki. Ingame I'd have to check the base game and FAF version of it, which I won't do. The build time is an issue though, being almost twice as much on the upgrade (2000 for upgrading to T3, 1100 for constructing another T2 Kennel).
Yep I normally put them on two or three sides of a factory (if 2 sides, I end up making them 2 deep too), they help churn out the units super fast, also means I do not need to micromanage engineers, in fact once I get the tier higher engineers, I tend to recycle the lower tiers.
I also put quite a few on the shoreline where they are close to a navel factory to help build units too, again saves micromanaging engineers.