GSA gets a cut of contract purchases that go through them but this makes sense because it incentivized them to be better alternatives than an agency’s own contract shops. Typically working through a GSA schedule like this can lead to faster turnaround and lower prices - nobody can charge the government more than their best commercial customer, legally, under this framework. If you don’t get value, put your own RFP on the street.

The incentive to get more dollars if you get more under management as a contract-service-provider does make sense. They’re not a monopoly on procurement in government, despite the author writing a book about monopolies.

Note: in some cases they have monopolies on some things in government, but not procurement.

Thanks for providing the background on how this came about, it makes a bit more sense now.

Could we get the same result by allocating the GSA a flat amount based on what they need and then penalize them by cutting the budget if no one uses their services, just like we do for other agencies?

No, the structural/legislative design of the GSA protects it from penalties because most of Gov't procurement is routed through its offices both Military (with caveats of course) & Civilian. The GSA spends money to reduce spending.

Interesting. I was discussing hypothetical possibly better arrangements, however, it's clear from the original article that the GSA doesn't currently operate this way.

Isn't this the definition of a kickback?

A kickback is when you personally get reimbursed for your decision, which isn’t the case here. A government office is being funded by a fee on services rendered.