First 'CHIPS for America' Funding Opportunity Provides $39B for Domestic and International Semiconductor Manufacturers

The US Department of Commerce has begun implementing the CHIPS and Sciences Act by introducing the first Notice of Funding Opportunity of its “CHIPS for America” incentive programs, which aim to support the construction, expansion, or modernization of commercial semiconductor manufacturing facilities in the United States. The program intends to increase domestic semiconductor production, reduce reliance on foreign suppliers, create new jobs in the semiconductor industry, and enhance national security by ensuring the availability of critical technologies for US government agencies and contractors.

On February 28, as part of implementing the bipartisan CHIPS and Sciences Act (CHIPS Act), the US Department of Commerce (Commerce) National Institute of Standards and Technology (NIST) introduced the first CHIPS for America Notice of Funding Opportunity (NOFO), seeking to provide manufacturing incentives via the $39 billion “CHIPS for America” incentive program (CHIPS Program) to restore US leadership in semiconductor manufacturing, support jobs across the semiconductor supply chain, and advance US economic and national security.

NIST is expected to release several funding opportunities, with the first NOFO focusing on leading-edge, current-generation, and mature-node semiconductor technology, a second NOFO for semiconductor materials and equipment facilities expected in the late spring, and a separate NOFO for the $11 billion funding to support research and development facilities to be released in the fall. Along with the first NOFO, Commerce also published a fact sheet, a FAQ page, and related guidelines.

The NOFO presents a unique opportunity for “covered entities” (include both domestic and foreign entities) to participate, so long as the funding is used (1) for the fabrication, assembly, testing, advanced packaging, or production of semiconductors, (2) for the construction, expansion, or modernization of specified facilities, and (3) with a documented interest in constructing, expanding, or modernizing an eligible facility.

While applications will be reviewed on a case-by-case basis, Commerce is expected to give preference to proposed projects that support government functions, national security objectives, or the US Department of Defense, as well as other social and economic goals as detailed below. Further, it is expected that Commerce will favor self-sustaining projects and companies that commit to providing workforce training.

The funding and application process presents significant opportunity, but is also predictably complex, and therefore this article is intended to provide an overview of the program and process. This article does not provide a full review of the program, however, and specific guidance should be sought for questions regarding the NOFO, application process, CHIPS Act, or any ongoing compliance obligations.

US GOVERNMENT POLICY OBJECTIVES

According to Commerce Secretary Gina Raimondo, the CHIPS Program will “make a once-in-a-generation size investment in our national security . . . The CHIPS Act is an investment in America.”

Building on Secretary Raimondo’s public statements, the CHIPS Program Office released a “Vision for Success” paper laying out strategic objectives for its investments in commercial fabrication facilities. In the paper, the CHIPS Program Office rigorously analyzed current gaps in the semiconductor supply chain to (1) help applicants and other stakeholders understand how the program intends to fill these gaps and advance US economic and national security; (2) explain program ambitions to a broader set of stakeholders, including customers, workers, universities, investors, Congress, state and local governments, allies and partners, and the wider economic and national security communities; and (3) offer the public transparency on where their tax dollars will go.

The paper outlines four goals to reach by the end of the decade, including (1) “Leading-Edge Logic” to make the United States home to at least two new large-scale clusters of leading-edge logic chip fabs; (2) “Advanced Packaging” to make the United States home to multiple, high-volume advanced packaging facilities; (3) “Leading-Edge Memory” to produce high-volume leading-edge dynamic random access memory chips in the United States; and (4) “Current-Generation and Mature-Node Semiconductors” to increase production capacity for current-generation and mature-node chips, especially for critical domestic industries.

PROGRAM OVERVIEW

The CHIPS Act provides $52.7 billion in federal funding, including $39 billion in semiconductor incentives, $13.2 billion in research and workforce development, and $500 million to strengthen global supply chains. In addition to the funding, the CHIPS Act created a 25% advanced manufacturing investment credit (investment tax credit) administered by the US Department of the Treasury and the Internal Revenue Service for qualifying investments in facilities manufacturing semiconductors or semiconductor manufacturing equipment. Refer to this LawFlash for discussion of the advanced manufacturing investment credit.

The CHIPS Program Office within NIST will oversee the allocation of the funds, as charged by the National Defense Authorization Act for Fiscal Year 2021. By issuing the NOFO, NIST officially kicks off the first tranche of funding. Commerce has said that it intends to devote about 75% of the subsidy (about $28 billion) to “investments in leading-edge manufacturing” and the remaining subsidies will be made available to back “new manufacturing capacity for mature and current-generation chips, new and specialty technologies, and for semiconductor industry suppliers.”

Application Process

According to the NOFO, the US government specifically seeks applications for projects to construct, expand, or modernize commercial facilities to produce leading-edge, current-generation, and mature-node semiconductors, including both front-end wafer fabrication and back-end packaging. Funding is available for “covered entities,” which include private entities or consortia of private and public entities that can demonstrate the ability to substantially finance, construct, expand, or modernize an eligible facility.

Importantly, as part of the application process, Commerce provided definitions for how it will classify production as leading-edge, current-generation, mature, or back-end and explicitly stated that only these projects are eligible for funding under this NOFO at this time:

• Leading-edge facilities are defined as those that use below 5nm processes for logic (including facilities using extreme ultraviolet lithography tools), 3D NAND flash memory (200 layers or above), and dynamic random-access memory (DRAM) with a half-pitch of 13nm or below.
• Current-generation facilities are defined as those producing logic, analog, or mixed-signal chips based on 5nm to 28nm processes.
• Mature-node facilities are (1) logic and analog chips that are not based on FinFET, post-FinFET transistor architectures, or any other sub-28 nm transistor architectures; (2) discrete semiconductor devices such as diodes and transistors; (3) optoelectronics and optical semiconductors; and (4) sensors.
• Back-end production facilities are those for the assembly, testing, or packaging of semiconductors that have completed the front-end fabrication process, including those manufacturing advanced packaging of semiconductors.

The NOFO details a five-part application process:

• Statement of Interest: A potential applicant must briefly describe the proposed project so that the CHIPS Program Office may gauge interest in the program and plan for further review. To submit a statement of interest, applicants will first need to register for an account on the CHIPS Incentives Portal. All potential applicants, including those for future funding opportunities, are strongly encouraged to submit detailed statements of interest so the CHIPS Program Office may gauge interest across the semiconductor ecosystem and begin preparing for application review.
• Pre-Application (Optional): In this stage, potential applicants may choose to submit a more detailed description of their project plan(s). The CHIPS Program Office will provide written feedback on the preapplication, including a recommendation to the applicant for next steps (i.e., whether the applicant should submit a revised pre-application, a full application, or neither).
• Full Application: Full applications contain detailed information on the project(s), including the technical and financial feasibility and alignment with economic and national security objectives. The CHIPS Program Office may provide feedback or seek further information or clarification from the applicant as part of the process. Before moving into the due diligence phase, the CHIPS Program Office will prepare and seek agreement to a non-binding Preliminary Memorandum of Terms, which will include recommendations for the award’s amount and form and may also include terms related to other strategic objectives.
• Due Diligence: If the CHIPS Program Office determines that an applicant is reasonably likely to receive an award—and the CHIPS Program Office and the applicant agree, or foresee agreement, on a non-binding Preliminary Memorandum of Terms—the application will enter the comprehensive due diligence phase. In this phase, the CHIPS Program Office will require the applicant to provide additional information on national security, financial, environmental, and other issues and will engage at the applicant’s expense with outside advisors, consultants, and/or attorneys to validate the information provided in the application.
• Award Preparation and Issuance: After successfully completing due diligence, Commerce will prepare and issue an award. Direct funding and loans will ultimately be disbursed in tranches tied to project milestones.

Key Dates

• The Statement of Interest (SOI) Application portal opened on February 28, 2023. A statement of interest must be submitted at least 21 days prior to submitting a pre-application or full application.
• Pre-applications (which are optional but recommended [1] by the CHIPS Program Office) and full applications for leading-edge facilities will be accepted on a rolling basis beginning March 31, 2023.
• Pre-applications for current-generation, mature-node, and back-end production facilities will be accepted on a rolling basis beginning May 1, 2023, and full applications for these categories will be accepted on a rolling basis beginning June 26, 2023.

Evaluation Criteria

The NOFO instructs that applications must address six program priority areas, and the extent to which the application addresses the program’s economic and national security objectives is of primary importance and will receive the greatest weight:

• Economic and National Security: The semiconductor supply chain is global, and different elements of the supply chain are geographically concentrated in different regions of the world. This concentration means that a range of risks—from cybersecurity threats to natural disasters to pandemics—have the capacity to disrupt international semiconductor supply chains and damage the United States and global economy. When drafting an application, please note that the CHIPS Program Office will invest in projects that meaningfully increase US semiconductor production and strengthen global supply chains. The CHIPS Program Office also seeks to fund projects that further US national security interests—for example, by providing the US Department of Defense and national security community with stable, long-term onshore access to semiconductors. Applications that emphasize these points are more likely to receive their funding request.
• Commercial Viability: Applicants must have a plan for reliable cash flows and continued investment, and in their applications, they should commit to making the investments and upgrades necessary to ensure that the facility remains commercially viable over the long term.
• Financial Strength: Applicants must submit a detailed financial model for their proposed project, including projected cash flows, internal rates of return, and profitability metrics. Moreover, because CHIPS funding will not be enough on its own to build the semiconductor production capacity necessary to meet the program’s economic and national security objectives, applicants are strongly advised to maximize private-sector contributions and illustrate these plans in their applications. The NOFO goes so far as to state that Commerce “may decline to award CHIPS Incentives at the requested amount if the applicant has not demonstrated sufficient efforts to maximize the use of private-sector funds.”
• Project Technical Feasibility & Readiness: To demonstrate technical feasibility, applicants must provide a clear project execution plan, including major construction and operational milestones, construction rights and permits, and key contractual arrangements. It should be noted that the CHIPS Program Office will also prioritize applicants who explain how they plan to meet environmental and permitting requirements in a timely fashion, such as by using existing infrastructure or securing agreements in advance from state and local permitting authorities to keep projects on schedule. Including this information may better improve an applicant’s chances for receiving funding. Applicants must also demonstrate their relevant experience and expertise to support successful execution at the scale envisioned in the application.
• Workforce Development: Applicants must commit to developing and maintaining a highly skilled, diverse workforce, including by outlining their plans to hire economically disadvantaged individuals. As such, applicants are encouraged to work with government organizations, educational institutions, labor unions, industry associations, and other strategic partners to meet the needs of the semiconductor industry in their region through training and education programs designed to expand employment opportunity for economically disadvantaged individuals. Finally, any applicant requesting more than $150 million in funding must provide a plan for “access to affordable, accessible, reliable, and high-quality childcare for both facility and construction workers.”
• Broader Impacts: The CHIPS Program Office is committed to building strong communities that share in the prosperity of the semiconductor industry and to safeguarding taxpayer investments. Consistent with these aims, the CHIPS Program Office will evaluate projects based on applicants’ plans to commit to future investment in the US semiconductor industry, including building research and development facilities in the United States; support CHIPS research and development programs; create opportunities for minority-owned, veteran-owned, and women-owned businesses; demonstrate climate and environmental responsibility; invest in their communities by addressing barriers to economic inclusion; and commit to using iron, steel, and construction materials produced in the United States. Notably, under the “upside sharing” plan, fund recipients receiving more than $150 million in funding will be required to share with the US government a portion of any cash flows or returns that exceed the applicant’s projections (above an agreed-upon threshold specified in the award and will not exceed 75% of the recipient’s direct funding award).

When drafting an application, funding applicants should keep these criteria in mind to demonstrate that the requested funding will incentivize investments in facilities and equipment in the United States that would not occur in the absence of the incentives.

The timing for full application review and due diligence will vary from project to project and will depend on the nature and quality of each application. Applications should include detailed information and address all aforementioned areas of interest to Commerce to increase funding approval odds.

Awards

Awards will take the form of direct funding, federal loans, and/or federal guarantees of third-party loans. Direct funding comes from the federal government and can take the form of grants, cooperative agreements, or other transactions. Loans are direct loans from the federal government to the applicant for eligible costs, and loan guarantees are federal guarantees of third-party loans to the applicant for eligible costs. Awards are designed to complement, not replace, private investment and other sources of funding, and applicants are strongly encouraged to bring capital to the table.

There is no fixed amount for how much a project can receive in direct funding. The CHIPS Program Office will determine the direct funding amount through rigorous evaluation and analysis of the project’s expected returns, among other factors. Most direct funding awards are generally expected to range between 5–15% of project capital expenditures. There also is no fixed limit on the loans or loan guarantees that a project may receive. Applicants may request loans or loan guarantees to provide debt financing that is not available on comparable terms on the private market, and the specific terms will be based on a project’s financing requirements and risk profile. A single application may result in an award that contains more than one type of incentive. The CHIPS Program Office generally expects that the total amount of an award, inclusive of direct funding and the principal amount of a loan or loan guarantee, will not exceed 35% of project capital expenditures.

Before receiving an award, each applicant must also have an active registration in the System for Award Management (SAM). Applicants should begin the process of registering for SAM.gov as soon as possible. Although this process typically takes less than two weeks to complete, it can sometimes take more than six months to complete due to information verification requirements.

If denied funding, an applicant may not resubmit the same or a substantially similar application in the future. Applicants may, however, submit a new application for a different project.

Timing of Fund Disbursements

According to the program’s FAQ page, there is no proposed timeline for the application review process, which says it will “vary from project to project and depend on the nature and quality of each application.”

Disbursements of direct funding are likely to be tied to project milestones in connection with both the capital expenditure components of the project and the workforce development and/or operational cost components of the project. The rate of disbursement is generally expected to be proportional to the rate at which non-federal dollars are expended over the course of the project, although determinations will be made on a case-by-case basis. CHIPS loans will likewise be disbursed in tranches aligned with project milestones and production classification (and priority is expected to be given to leading-edge production).

Compliance

The CHIPS Program Office will track the performance of each CHIPS Incentive award via financial and programmatic reports, per the award terms and conditions. Usually, reports will be required no less than semi-annually and must be submitted in an electronic format to be specified at the time of the award. It is important to complete any compliance measures in advance of the due date.

Funds made available under the CHIPS Incentives Program must also be put only to eligible uses and may not be used to

• construct, modify, or improve a facility outside of the United States;
• physically relocate existing facility infrastructure to another jurisdiction in the United States, unless the project is in the interest of the United States, as determined by Commerce;
• purchase an equity security that is listed on a national securities exchange of an award recipient or to pay dividends or make other capital distributions with respect to the common stock (or equivalent interest) of the recipient or any parent company of such recipient;
• pay off any federal direct or guaranteed loan or any other form of federal debt; or
• fund indirect costs.

Additionally, the CHIPS Program Office will also ensure that no company can use CHIPS funding to undermine national security. Because “foreign entities of concern” (defined under 15 USC § 4651(8)) may poses an undue risk to a funding project (through due diligence, control, access to information, or other mechanisms), applicants must identify or mitigate national security risks that may arise both before the application and after the funding is approved. For purposes of reviewing applications involving foreign entities of concern, the term “control” means any direct or indirect investment in a corporate entity that provides the investor with the “means to influence important matters” affecting the project. The phrasing “means to influence important matters” in turn is defined to include membership or observer rights on, or the right to nominate an individual to a position on, the board of directors or equivalent governing body of the corporate entity; any involvement, other than through voting of shares, in substantive decision-making by the corporate entity; and consultation rights with respect to technology licensing to third parties.

Moreover, successful applicants must agree not to engage in certain significant transactions involving the material expansion of semiconductor manufacturing capacity in countries of concern for 10 years, beginning on the date of the award. Applicants will have to return the full amount of an award if they knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that raises national security fears. Commerce will soon release additional information on these guardrails.

NEXT STEPS

The CHIPS Program Office will launch two additional funding opportunities for the CHIPS Incentives Program. In late spring 2023, the CHIPS Program Office intends to release a funding opportunity focused on the construction, expansion, or modernization of facilities for semiconductor materials and manufacturing equipment. In early fall 2023, the CHIPS Program Office intends to release an $11 billion funding opportunity for the construction, expansion, or modernization of facilities for research and development.

CONCLUSION

Although the CHIPS Act provides significant funding, it is anticipated that the appropriations will be insufficient to fund all of the projects for which applications are submitted. Therefore, potential applicants should be mindful of deadlines, and in particular note the upcoming March 31 date on which pre-applications will start being accepted on a rolling basis. Because the process will be highly competitive, it will be vital for applicants to make compelling cases for how the proposed projects advance US government policy objectives, as reflected in the evaluation criteria. Even once a project receives funding, it will be important for recipients to implement robust compliance programs, because in some circumstances non-compliance could result in the funding needing to be disgorged by the recipient.