I am part of a team working on the second phase of a project. The project hasn't been published in any journals or conferences yet, mainly because not a lot of work has been done completely. Practical work of a certain significant part has been done by a previous team. My team started two months ago and we have enough exposure to write a conference paper proposing the design and the theoretical work completely.
My project guide asked us to start writing a publish-ready paper encompassing everything, including the previous years practical work. He says, cite their term project and use their data. He was the guide of their term project too. I'm unsure as to whether it's right to just cite their unpublished thesis work. I think maybe they should be co-authors too since their work does comprise a significant part in the paper.
Am I right and should I bring it up to the professor? If so, how should I do it without offending him? If the question is vague, I could give more specifics.
EDIT: The field is control and robotics. The practical work is calibration of the equipment in question. The overall paper does include control strategy, dynamics and other sections that the previous researchers have not touched upon.