CHIPS Act Strategy: Department of Commerce Releases Additional Information on Applications for $50 Billion in Funding | Akin Gump Strauss Hauer & Feld LLP - JDSupra

2022-09-24 07:29:48 By : Mr. Andy Yang

On September 6, 2022, the U.S. Department of Commerce (“Department”) released a 20-page document providing key details on the administration and application process for the award of $50 Billion through the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Fund.

The “Strategy for the CHIPS for America Fund” included important information about the breakdown of the funding it will disburse, the priorities it will set for awarding grants, the intended timeline for the first awards and how the agencies will staff the programs, among other items. Here are the key takeaways:

The program will be administered through two new offices at the Department of Commerce’s National Institute of Standards and Technology (NIST). The CHIPS Program Office (CPO) will implement the Section 9902 semiconductor incentives program and provide policy and stakeholder engagement support across CHIPS programs. The CHIPS research and development (R&D) office will “incubate” the National Semiconductor Technology Center (NSTC), and manage the Industrial Advisory Committee, Advanced Packaging, Manufacturing USA and R&D activities. Staff have not yet been publicly named to lead the CPO or CHIPS R&D office.

The CHIPS Act of 2022, which we previously analyzed in a July 27, 2022 client alert here, directly appropriates $39 billion in funding to incentivize domestic chip manufacturing and $11 billion for semiconductor research and development, provides some guidance on how to disburse that money but gives significant discretion to the Secretary. For example, the statute says that up to $6 billion may be used for the cost of direct loans and loan guarantees and $2 billion is explicitly provided solely to focus on legacy chip production. However, the Department’s newly released strategy offers the first window into how the Secretary will use her discretion to award funding under the CHIPS programs. It identifies three key initiatives:

The Department encourages “industry participants to craft creative proposals” and expects this pot of funding to support potentially dozens of grants with the total financial assistance varying considerably “depending on the specifics of each project.”

The strategy notes that the Department intends to solicit funding applications before February 2023 for the semiconductor incentives programs (i.e., key initiatives 1 and 2 above). In addition, CPO will establish “a preliminary application stage that will enable applicants to get feedback” from the Department before final applications are due.

1. Cost Share/Private Capital. A significant project cost share by the applicant will either be required or result in a significant prioritization for funding. In addition, the Department is encouraging proposals that leverage private capital, both investments from the fab companies themselves as well as outside sources of capital. In addition to committing their own significant resources, semiconductor companies are encouraged to explore creative financing structures to tap a variety of sources of capital at different places on the risk-reward spectrum to reduce the overall cost of capital.

2. Expanded Covered Incentives. The Department expects to prioritize applications “that include state and local incentive packages with the potential for large spill-over benefits, are based on performance, and maximize regional and local competitiveness as well as economic gains, including supporting a robust semiconductor ecosystem rather than a single company.” Encouraged expanded incentives include, but are not limited to: (1) support for broader development of a supplier ecosystem such as shared utility, logistics and production capacity, (2) workforce investment and (3) long term tax credits.

3. Quick Delivery/Low Project Risk. The Department will prioritize funding for proposals that can “move quickly, reduce project risk, demonstrate ample local support and/or regional cooperation, and provide broad-based benefits.”

4. Security and Resiliency. The Department expects to prioritize projects that “adhere to standards and guidelines on information security, data tracking and verification, and that collaborate on further development and adoption of such standards.”

5. Workforce. The Department expects to prioritize investments in projects that connect workforce training dollars to quality jobs that exceed the local prevailing wage for an industry in the region, including basic benefits (e.g., paid leave, health insurance, retirement/savings plan) and/or are unionized.

6. Diversity and Underserved Populations. The Department will prioritize “applicants with well-developed proposals designed to increase participation of and outreach to economically disadvantaged individuals, minority-owned businesses, veteran-owned businesses, women-owned businesses, and rural businesses in the geographic area of each project.”

1. Collaboration. The Department is encouraging applications that evidence collaboration between industry stakeholders, investors, customers, designers and suppliers; and international firms. This can include (1) purchase commitments, (2) enabling fabless design firms and/or (3) “consortium-like proposals, by semiconductor fabricators and their upstream suppliers (e.g., of substrates or specialty chemicals), equipment providers, and downstream partners (e.g., of assembly, test, and packaging).”

2. State/Local Commitment. The Department notes the benefit and potential prioritization of applications that demonstrate significant state and localities commitment beyond the required covered incentive. This could include:

3. Workforce. The Department is encouraging projects that include effective and creative workforce development solutions at the scale required to meet demand.

The Department has stated that each application will require the submission of the following details:

1. An executable plan to sustain the facility without further Section 9902 funding that covers the expected useful life of the facility receiving support.

2. Provisions for necessary investments and upgrades to ensure that the facility remains competitive and commercially viable for its useful life.

3. Commercially reasonable assumptions for revenue, operating costs, cash flows and other drivers of financial sustainability.

4. An analysis of how the Incentive Tax Credit will impact the financial results of the project.

While the Commerce’s strategic plan is extraordinarily helpful as entities develop proposals, many critical questions remain unanswered, including the following:

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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