First CHIPS for America Funding Opportunity Released: What Potential Applicants Should Know
On February 28, the Commerce Department released its first Notice of Funding Opportunity (NOFO) for the CHIPS incentive program. Created by the fiscal year 2021 National Defense Authorization Act (Pub. L. 116-283) and funded through the CHIPS and Science Act (Pub. L. 117-167), the $39 billion incentive program seeks to increase domestic semiconductor manufacturing, maintain America’s technological leadership, and promote U.S. economic and national security.1 While the Commerce Department expects to release several funding opportunities, the first NOFO focuses on leading-edge, current-generation, and mature-node semiconductor technology, including front-end wafer fabrication, back-end packaging, assembly, and testing. It also includes funding for new and specialty semiconductor manufacturing facilities. Additional funding opportunities will be announced for semiconductor materials and manufacturing equipment facilities in late spring 2023 and for R&D facilities in fall 2023.
Generally, the CHIPS incentive program is open to “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.2 Funding is available to covered entities “to incentivize investment in facilities and equipment in the United States” for the fabrication, assembly, testing, advanced packaging, or production of semiconductors.3 The Commerce Department indicates that funding awards will include a combination of direct funding, loans, and loan guarantees. CHIPS incentive awards are expected to cover up to 35 percent of project capital expenditures, with 5-15 percent of project capital expenditures covered by direct funding.
To apply for a CHIPS incentive award, applicants must (1) obtain a state or local incentive; (2) make commitments to worker and community investment; (3) secure commitments from regional education and training entities to provide workforce training; and (4) demonstrate an executable plan to sustain the project without additional federal assistance.4 Notably, applicants will also need to demonstrate how a CHIPS incentive award will incentivize the applicant to make investments in facilities and equipment in the United States that would not occur without the CHIPS incentive award. As Commerce Secretary Gina Raimondo said in a recent speech, these and other requirements in the CHIPS program are designed to support the central U.S. national objective to “build a reliable and resilient semiconductor industry that protects America’s technological leadership for the coming decades.”5 Applications for CHIPS funding must meet the technical requirements discussed below. Successful applications, however, should reflect this imperative and go beyond technical merit to show the Commerce Department how this goal would be facilitated under the application, as emphasized in the evaluation criteria discussed below.
The first funding opportunity is broken down into two phases: one focused on applications for leading-edge facilities, and one focused on current-generation, mature-node, and back-end facilities. All applicants must register for and submit a Statement of Interest, which must be filed at least three weeks before filing a pre-application or application. For leading-edge facilities, applications will be accepted on a rolling basis beginning on March 31. For current-generation, mature-node, and back-end facilities, the NOFO recommends filing a pre-application, which can be submitted beginning on May 1, and a full application, which may be submitted starting on June 26.
The first NOFO is vague on the details of the guardrails provision, an ambiguity that persists in the closely related Advanced Manufacturing Tax Credit.6 For more information on the guardrails provision, please see our previous Advisory.
We will be discussing the NOFO during our webinar on Wednesday, March 15, from 5:30 p.m. – 6:30 p.m. EST. You may register for the webinar here.
The NOFO outlines a five-step application process:
1. Statement of Interest: All applicants must file a statement of interest at least 21 days before submitting a pre-application or full application. Potential applicants that are not eligible to participate in the first NOFO are also encouraged to submit a Statement of Interest to help the department gauge interest in the program. The Statement of Interest will not be evaluated as part of the review and selection process.
The Statement of Interest must include:
- Applicant information.
- Basic project information, including the nature of the project and potential scope.
- Estimated timeline for submission of pre-application or full application.
Additional guidance on what to include in the Statement of Interest can be found here.
2. Pre-application: A pre-application is optional but recommended for current-generation, mature-node, and packaging applications. The department will provide a preliminary assessment of the likelihood of a potential application receiving a CHIPS incentive award and feedback to applicants before they prepare a full application package.
The pre-application must include:
- More detailed description of proposed project(s).
- Summary of financial information.
- Environmental questionnaire.
- Workforce development information.
3. Full Application: A full application will include detailed information on the proposed project(s) to enable the evaluation of its merits. In addition, full applications must describe their covered incentive and discuss how the proposed project aligns with the economic and national security objectives of the CHIPS program.
An investment committee will conduct an individual, qualitative assessment of the full application against the evaluation criteria (discussed below). The investment committee will make a written determination that the application is (1) eligible for an award and should be advanced to the due diligence phase; (2) the application should be held for later consideration pending review of other applications; or (3) the application should be denied, which shall be a final and non-appealable decision. The department will prepare a non-binding Preliminary Memorandum of Terms for projects advancing to the due diligence phase.
4. Due Diligence: If the department determines that a full application is reasonably likely to receive a CHIPS incentive award, the application will enter the due diligence phase. During this phase, the department will conduct due diligence on the full application for national security risks, financial and commercial information, environmental impacts, and other issues, to inform a final determination. During this phase, the department will engage outside advisors and consultants to assist with the department’s review. Applicants will be responsible for the fees and costs.
5. Award Presentation: The department will prepare and issue one or more CHIPS incentive awards for applications selected for funding. Funding disbursements will be tied to project milestones determined during the application process.
Each application will be evaluated against six criteria, with the first criterion weighted most heavily and the other criteria weighted approximately equally.
- Economic and National Security Objectives: This criterion will assess the economic and national security impacts of the proposed project. The economic component will analyze how the proposed project contributes to building domestic capacity that reduces U.S. dependence on vulnerable or overly concentrated production, thereby enhancing economic security. The national security component will evaluate whether the proposed project addresses national security considerations, including securing supply chains for technologies used by government agencies or contractors. This component will also evaluate the project’s ability to withstand threats from foreign entities of concern and its operational vulnerabilities and resilience.
- Commercial Viability: This criterion will assess a project’s long-term commercial viability to ensure there is a reasonable market environment and demand for the project’s output and the stability and predictability of sourcing inputs. It will also assess the project for the risk of technology obsolescence during the useful life of the facility and the applicant’s plans for maintenance and upgrades to keep the facility competitive and commercially viable for its useful life.
- Financial Strength: This criterion will determine a project’s financial strength and ability to withstand stress in market downturn conditions. This will include the financial strength of the applicant relative to the proposed project, the comprehensiveness and reasonableness of the projected capital expenditures, and the likelihood that the project will generate sustainable earnings and operating cash flows. It will also include consideration of the degree to which the applicant has committed private investment or attracted third-party investment to increase scale and reduce the need for CHIPS funding.
- Technical Feasibility and Readiness: This criterion will address the feasibility of execution from construction to operation and maintenance. The assessment of this criterion will consider the applicant’s organizational readiness, the likelihood the applicant will successfully execute the technology and manufacturing processes proposed in the project, and the extent the applicant has a viable construction plan and appropriate mechanisms in place to reduce construction risks.
- Workforce Development: This criterion will determine whether a project’s workforce development plans set out a coherent, achievable, and equitable strategy to address talent needs and generate the workforce needed to execute the applicant’s project goals. This will include the applicant’s strategies and financial plan to recruit, secure, and train the workforce needed to complete the proposed project; the capacity, resourcing, and cohesiveness of the applicant’s partnerships; and the applicant’s plans to use apprenticeship readiness and other programs to train diverse populations.
- Broader Impacts: This criterion will determine the degree to which the proposed project will provide broader public impacts. This includes explicit evidence of real and credible commitments to building domestic R&D facilities to ensure a sustainable innovation ecosystem is being built. It also includes the strength of the applicant’s commitment to the CHIPS R&D programs; the applicant’s strategy for engaging with small, minority-owned, veteran-owned, and women-owned businesses; the applicant’s climate and environmental responsibility plan; and the applicant’s plans to develop local community investments that will drive regional equity and inclusion.
Prioritization and Selection Factors
The department outlines several prioritization and selection factors for selecting applications that will be funded. The department will give “significant primary weight” to the first factor in prioritizing applications in the review and selection process.
- Contribution to economic and national security.
- Efficient use of taxpayer dollars.
- Creation of broader impacts.
- Extent the applicant is prepared to proceed to execution.
- Whether the project will produce chips for critical infrastructure.
- Whether the applicant (or corporate affiliate of the applicant) has previously received a CHIPS incentive award.
- Whether the project duplicates other projects funded by the department or other federal agencies.
- Diversity of awards in the program, including the geographic location of the facilities receiving CHIPS incentive awards and the size of the awards.
The NOFO outlines the following additional restrictions and requirements:
- Profit Sharing: CHIPS incentive applicants that receive more than $150 million in direct funding will be required to share a portion of any cashflows or returns that exceed the projections included in the applicant’s CHIPS incentive application. Profit sharing will be limited to $112,500,000 or 75 percent of the direct funding award. These proceeds will be used to support the purposes of the CHIPS Act and to strengthen the U.S. semiconductor ecosystem.
- Child Care: Any applicant that requests more than $150 million in direct funding will be required to include a plan to provide access to “affordable, accessible, reliable, and high-quality child care for facility and construction workers.” Applicants may include on- or near-site child care, subsidize the cost of child care, or partner with off-site providers to ensure the availability of child care for workers. Applicants that request less than $150 million in direct funding are “very strongly encouraged” to provide access to child care for facility and construction workers to the “greatest extent feasible” and will be evaluated on whether the benefits are included in their workforce plan.
Of note, the Commerce Department published a “Vision for Success”7 with the NOFO. The Vision for Success highlights several “cross-cutting themes” that are “critical” to the program’s success and should be scrutinized as part of any application process.
How does the program define leading-edge facilities?
The program defines leading-edge facilities as those that “utilize the most advanced front-end fabrication processes which achieve the highest transistor and power performance.” For logic, this includes facilities that produce semiconductors at high volumes using extreme ultraviolet (EUV) lithography tools. For memory, this includes facilities capable of producing 3D NAND flash chips with 200 or more layers and/or dynamic random-access memory (DRAM) chips with a half-pitch of 13 nm and lower.
How does the program define current-generation facilities?
The program defines current-generation facilities as those that “produce semiconductors that are not leading edge, up to 28 nm process technologies, and include logic, analog, radio frequency, and mixed-signal devices.” The program also includes new and specialty technologies, including compound semiconductors, in its “current-generation facilities” definition.
How does the program define mature-node facilities?
The program defines mature-node facilities as those that fabricate generations of:
- Logic and analog chips that are not based on FinFET, post-FinFET transistor architectures, or any other sub-28-nm transistor architectures.
- Discrete semiconductor devices such as diodes and transistors.
- Optoelectronics and optical semiconductors; and sensors.
The definition also includes back-end production facilities for the assembly, testing, or packaging of semiconductors that have completed the front-end fabrication process and advanced packaging. The NOFO notes the Commerce Department is particularly interested in projects that ensure competitive operating costs within the United States (e.g., through automation).
Under the CHIPS program, the U.S. government seeks to build a world-leading, resilient, and competitive semiconductor industry. It recognizes that, despite Congress’s appropriation of billions of taxpayer funds, the existing amounts must be leveraged by commitments from private industry to accomplish the goals of the CHIPS Act. These intertwined goals are woven through the NOFO and the related materials released by the Commerce Department. Any application seeking CHIPS funding must both meet the technical requirements outlined above and describe how any federal investment achieves these larger national goals.
© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
The CHIPS program will also invest $11 billion in infrastructure and research and development programs, including the National Semiconductor Technology Center, the National Advanced Packaging Manufacturing Program, and several regional Manufacturing USA Institutes. See generally § 9906, William M. (Mac) Thornberry National Defense Authorization, P. L. No. 116-283 (2021).