Mary Kopczynski, CEO of RegAlytics, breaks down hot regulatory topics, exclusively for Exiger. This episode focuses on Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act).
The CHIPS Act established a $52 billion CHIPS for America Fund to invest in the development of semiconductor technology in the United States.
A Matter of National Security
Semiconductor chips are a critical component of any artificial intelligence capability as well as our micro-electronics, like our phones, which we so love and now rely on. While semiconductors were invented in the United States, only 10% of the production is happening here. And given the global climate, it is in our national security interest to strengthen our supply chain domestically.
But what does the CHIPS Act mean for you? Well, if you are an established company or perhaps a start-up, it means you can get access to government funding to promote and become a part of this soon-to-be thriving semiconductor industry in the United States.
Funds 5-25% of Project Expenditures
Now how does this work exactly? CHIPS Incentives will be provided, as appropriate, through grants, cooperative agreements, other transaction agreements, loans and loan guarantees.
CHIPS is an incentive to get you to do the job, and get it done right. It is not a payout or an experimental venture fund. The Commerce Department — which is responsible for reviewing and granting the awards — wants to see that you have substantial investment ready to go, and CHIPS Act funding will only comprise 5-35% of the total project’s capital expenditure.
While Commerce expects one, overarching legal entity to apply and be legally responsible for administering the funding, both Notice of Fundings mention multiple times that Commerce expects to see companies working together to create a cluster of industry participants so that the whole ecosystem is ready to go as quickly as possible.
Just make sure that NONE of those entities are outside the United States.
2 of 3 Awards Funded So Far
So far there are two out of an expected three Notices for Funding. The first is for Commercial Fabrication Facilities. The Second is for Facilities for Semiconductor Materials and Manufacturing Equipment. Later, they’ll be issuing a third that will focus on R&D facilities.
The biggest distinction between the two existing ones is the award size and what you’re allowed to build with it.
Type 1: $300M+ for Semiconductor Production
The first award type is for those who are looking for investments over $300 million. These awards will be granted to projects focused on constructing, expanding or modernizing the production of leading-edge, current generation semiconductors, or taking older facilities and upgrading them.
Type 2: $300M or Less for Semiconductor Supply Chain
The second award is for investments under $300 million. Commerce reiterated its preference to award a single entity serving as an umbrella for multiple players because they want the program to be a success. For example, Commerce said it would rarely consider a project under $20 million unless it was truly spectacular, for instance a highly specialized security technology — to justify a smaller award.
This smaller award opportunity can fund up- or downstream materials that go into building semiconductors; for example, solvents, certain minerals (e.g., titanium or aluminum), equipment (e.g., etching, or wafer-slicing equipment) and more. However, you must demonstrate that these products are linked to an existing or proposed semiconductor plant.
Where to Apply
There’s a website to apply, which includes a pre-proposal stage. If your pre-proposal passes muster, Commerce will call you back for additional diligence.
What to Know
But before you apply, there are some important requirements.
- It has to do with semiconductors.
- It cannot be linked to non-US companies. There are clawback provisions if it is later discovered you used the funding improperly.
- It needs to meet application requirements, which include financial requirements and regulatory requirements (which includes import/export restrictions).
- It must follow environmental standards.
- It must include a plan for workforce development, as well as affordable access to childcare for the workers.
- And, finally, if you get more than $150 million dollars in awards, you are obligated to share a portion of those cash flows with the U.S. government where the returns exceed your projections.
Now that you have a clearer picture of CHIPS and whether it’s a program for your company, the question is how to ensure your supply chain management program is ready to pass muster as a formal U.S. government contractor. Look no further than Exiger, as the U.S. government leverages our capabilities to ensure national security objectives are baked directly into its own supply chain.
Notice of Funding Opportunity 1: Commercial Fabrication Facilities
Notice of Funding Opportunity 2: Small-Scale Supplier Projects