March 03, 2023

CHIPS Act Funding: An Opportunity with Strings

The CHIPS and Science Act, passed into law in mid-2022 by the Biden administration, represents a wholesale change in U.S. industrial policy from the prior administration. The law seeks to reinvigorate domestic research and manufacturing through roughly $280 billion in new funding. Of that, roughly $53 billion in incentives is included for semiconductor manufacturing. The application process for those funds opened this week, but not without additional eligibility requirements released this week by the Department of Commerce’s (DOC) Notice of Funding Opportunity (NOFO).

The following is a brief look at some of the conditions that the Biden administration has placed upon successful applicants for this funding:

  • Construction: as part of the application process, applicants must provide detailed timelines for commencement and completion of each project. In an effort to ensure timely use of federal funds, the NOFO specifies penalties, specifically federal clawbacks on funding, if those dates are not adhered to. Given existing issues around supply chain bottlenecks and a persistent labor shortage, this poses some risks. The DOC may issue waivers of the clawbacks requirements if it is determined that circumstances beyond the applicants control or ability to foresee are responsible for the delay. Exactly what those circumstances are, and the willingness of the DOC to issue such waivers is still unknown.
  • Technology: In a greater effort to marry National Security Policy with Industrial Policy, the NOFO also contains prohibitions against successful applicants engaging in joint research or technology licensing with a foreign entity of concern if that technology or product is the subject of a national security concern. Breach of this technology-sharing clawback entitles the DOC to recover the full amount of a reward. The NOFO does not specify if this covers existing joint research or technology licensing.
  • Foreign Country of Concern Expansion: The CHIPS Act requires that a “successful applicant must enter into an agreement specifying that during the 10-year period beginning on the date of the award, it may not engage in any significant transaction involving the material expansion of semiconductor manufacturing capacity any foreign country of concern, except under certain limited conditions.” While this language may seem straightforward, particularly with reference to China and Russia, the limited conditions reference exceptions in statute. The restrictions in statute do not apply to: (1) existing facilities; and (2) the production of legacy semiconductors that predominately serves the market of a foreign country of concern.
  • Telecommunication and Video Surveillance: this prohibition covers the use of technologies emanating from certain foreign entities of concern, primarily Chinese companies. These entities were listed in section 889 of the National Defense Authorization Act of 2019 and include firms like Huawei, ZTE, Hytera, and others.
  • Childcare: The Department requires that those requesting over $150 million in CHIPS funding provide a “a plan for access to childcare for facility and construction workers, e.g., through on- or near-site childcare, pre-arranged agreements with existing childcare providers, childcare subsidies, or other similar measures.” The criteria for the childcare specifics that it must be affordable, accessible, reliable, and of high-quality. While the intent may be to provide more options for economically disadvantaged individuals, it could present serious challenges for firms seeking to take advantage of this program. In many areas that companies are looking to invest, which is heavily skewed towards rural areas, there may not exist the infrastructure to handle the needed capacity.

While the NOFO is not final, and additional rules and guidelines around the program have yet to be released, it is important to note these additional qualifications. Firms will need to weigh the clawbacks and programs requirements against the possible benefits. For more information on any of the above issues or more insight on the CHIPS Act, contact Josh Andrews or Bryan Allen.  

The energy, manufacturing and technology team at Faegre Drinker is dedicated to providing client service and government relations representation to the makers of the products essential to modern life. We are experienced in navigating complicated regulatory regimes and the political landscape on Capitol Hill. Our clients are fueling the advancement of the American economy through the production of the components of microchips; consumer goods; food products; traditional, renewable and nuclear energy; and domestic rare earth elements.

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