On February 28, 2023, the Commerce Department released the first Notice of Funding Opportunity (“First NOFO”) under the recently enacted CHIPS and Science Act (CHIPS Act), P.L. 117-167. The First NOFO seeks applications for assistance—including direct funding, loans, and loan guarantees—for projects to construct, expand, or modernize commercial semiconductor facilities.
In addition, the Commerce Department’s CHIPS Program Office announced that it will issue two additional NOFOs this year—a second NOFO for semiconductor materials and manufacturing equipment facilities in the spring of 2023, and a third NOFO for research and development facilities in the fall of 2023.
The First NOFO is focused on the fabrication of leading-edge, current-generation, and mature-node semiconductors and includes both front-end wafer fabrication and back-end assembly, testing, and packaging. According to the CHIPS Program Office’s webinar on February 28, the Commerce Department has begun accepting statements of interest for all potential applicants. It will begin accepting full applications on a rolling basis beginning March 31, 2023 for leading-edge manufacturing facilities, and June 26, 2023 for current-generation, mature-node, or back-end manufacturing facilities.
Financial Incentives and Restrictions
The First NOFO is open to private and nonprofit entities or consortia of any combination of nonprofit, public, and private entities. Applicants must have a demonstrated ability to substantially finance, construct, or expand an eligible semiconductor facility. Applicants should also be domestic legal entities. The Commerce Department may, at its discretion, provide CHIPS Act incentives to a foreign entity, but the NOFO makes clear that foreign applicants will be subject to additional diligence.
Under the First NOFO, applicants will be eligible to receive any combination of assistance provided under the CHIPS Act: direct funding (such as grants and cooperative agreements), loans, and loan guarantees. CHIPS assistance may be used to:
- finance the construction, expansion, or modernization of a domestic semiconductor manufacturing facility, or equipment for that facility;
- support site development and modernization for a domestic semiconductor manufacturing facility;
- support workforce development for a domestic semiconductor manufacturing facility; or
- pay reasonable operating expenses for a domestic semiconductor manufacturing facility, as determined by the Commerce Department.
The Commerce Department will limit total government assistance to no more than 35% of a project’s capital expenditures, with direct funding awards ranging between 5% and 15% of a project’s expected capital expenditures. The CHIPS Program Office confirmed it is seeking to limit government assistance on projects to the minimum amount necessary to encourage investment in domestic semiconductor manufacturing and attract private capital to it. To that end, the CHIPS Act appropriated nearly $39 billion in direct funding and $75 billion in direct loan or guaranteed principal to support and grow the domestic semiconductor industry for the life of the CHIPS program.
CHIPS Act assistance, including loans and loan guarantees, provided under the First NOFO are subject to funding restrictions, including the following:
- No CHIPS Act assistance may be used for:
- Foreign facilities,
- Payments to foreign entities of concern,
- Stock buybacks, or
- Payments of any federal debt;
- Indirect costs (even on an approved project) or any incremental costs above actual cost.
- CHIPS Act assistance recipients must project their cash flow, and for projects valued at or above $150 million, if the actual returns significantly exceed a threshold to be determined on a case-by-case basis, the recipient will be required remit “upside sharing” in the form of cash payments to the Government;
In addition, recipients of CHIPS Act assistance will be required to agree not to invest in the development of advanced semiconductors in China and other countries of concern for a period of 10 years. CHIPS assistance recipients also may not knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that involves sensitive technologies or products. The Commerce Department may seek to claw back CHIPS Act funds from a recipient that violates these restrictions, among others.
The Commerce Department expects to issue a proposed rulemaking by the end of March 2023 to provide guardrails for implementing the foreign entity of concern and claw back provisions.
First NOFO Application Process
Potential applicants must submit a statement of interest to the CHIPS Program Office prior to submitting an application. In addition, the CHIPS Program Office recommends submitting a pre-application so that the applicant and the Office can ensure the proposed application meets program requirements and addresses program priorities.
To be considered for a CHIPS Incentives Award under the First NOFO, applicants must then submit a full application, including required information, narratives, and standard forms. The Commerce Department will engage with applicants to provide feedback, seek clarifications, and negotiate preliminary terms of any potential award.
Substantive elements of a full application include those described below and address the CHIPS Act’s six priorities—Economic and National Security; Commercial Viability; Financial Strength; Project Technical Feasibility & Readiness; Workforce Development; Broader Impacts:
- Cover letter identifying the state or local government entity that has offered a qualifying covered incentive to attract the construction, expansion, or modernization of the facility for the project;
- Project description – including a project timeline, summary addressing evaluation criteria, justification for how the CHIPS Incentives requested will incentivize the applicant to make the project investment;
- Applicant Profile – including company financial information, equity capital structure, outstanding debt;
- Substantive proposal addressing the following areas, which respond specifically to the evaluation criteria:
- Alignment with Economic and National Security Objectives – including material addressing cybersecurity, supply chain resilience and risk management, foreign control information to enable the Commerce Department to evaluate how a project furthers national security by providing a stable supply of domestically manufactured semiconductors;
- Commercial Strategy – Proposals must address end-market demand, market position and competitor landscape, stability of supplies and materials, and continued improvement plans. Among other things, proposals will be evaluated for their demonstration reliable cash flows and continued investment;
- Financial Information – Proposals must address information including the project’s sources and uses of funds, the anticipated project costs and cash flow, balance sheet projections, and detailed CHIPS Incentives/Loan or Loan Guarantee request(s). Proposals will be evaluated based on that information, as well as (among other things) how the project’s private investment will complement government incentives.
- Project Technical Feasibility – including details regarding the technology and manufacturing process, a construction plan, an environmental questionnaire, and other related information for the Commerce Department to assess project readiness;
- Organization Information – including ownership and organizational structure information, managerial capabilities, past project history, intellectual property security, litigation or conflicts information, advisors and key partners;
- Workforce Development Plan – including facility and construction workforce plans, identification of strategic partnerships with labor unions, academic institutions, and community groups to meet workforce needs, a plan for the child care requirement[CS1] ; and either commit to having a Project Labor Agreement or outlined additional steps to ensure timely project completion;
- Broader Impacts –including commitments to future investment in the U.S. semiconductor industry and ongoing capital, support for semiconductor research and development, a supplier diversity plan, a climate and environmental responsibility plan, community investments, and domestic content plans; and
- Standard Forms (including, among other forms, an SF-328 form in order for the Commerce Department to evaluate foreign ownership, control, or influence related to the project and ensure that foreign entities of concern will not through control, access to information, or otherwise pose an undue risk to a project or national security);
Finally, likely award recipients will enter a due diligence phase with the Commerce Department. At a high level, the due diligence will require the applicant to provide additional information relevant to its financial security, and demonstrate compliance with national security and environmental standards for the project. Each applicant is responsible for the cost of its due diligence review, including the Commerce Department’s outside consultants.
Recipients of CHIPS Act incentives will be expected to comply with applicable environmental requirements, including the National Environmental Policy Act, and to obtain any necessary environmental permits required for construction and operation.
Project developers may be required to develop an environmental assessment or environmental impact assessment, as well as consider whether the project may affect threatened or endangered species or their habitat and historic, archeological, or Tribal resources.
The CHIPS Program Office recommends interested applicants to begin consideration of NEPA and scoping of relevant environmental obligations prior to submitting an application. In 2022, Congress amended the FAST Act to add semiconductor manufacturing to the list of projects that may be subject to the inter-agency environmental review process managed by the Federal Permitting Improvement Steering Council; this process may help CHIPS Act funding recipients to navigate the federal permitting and environmental review process.
As statements of interest, potential applications, and final applications are being accepted on a rolling basis, applicants should consider balancing submission of an application as early as possible with ensuring the application is complete. Statements of interest are required and must be submitted 21 days before a pre-application or full application.
Potential applicants should closely review the released First NOFO to ensure any project fully addresses the CHIPS Program Office project requirements and goals and meets project submission requirements (administrative, technical, and substantive).
Once an award has been made, the award will be subject to technology, construction, and foreign country of concern expansion clawback provisions and require compliance with various federal labor, supply chain, and employment laws. Companies should either have programs in place to be compliant at award or have plans in place to ensure compliance upon award.
Crowell & Moring continues to monitor developments on the CHIPS Act implementation and supports clients with compliance, solutions, and program development relating to government contracts and grants, environmental, labor and employment, construction, supply chain, national security, and corporate law concerns.