The COVID-19 pandemic created unprecedented challenges in technology, with the demand for equipment increasing dramatically as the world quickly transitioned into remote operations. During this time, the United States’ semiconductor industry was dependent on supply chains in China and Taiwan to meet the country’s need. In response, in 2021, President Biden passed the CHIPS for America Act, which was designed to revitalize the U.S. semiconductor industry and protect domestic technology production. Then, on 9 August 2022, President Biden signed into law the CHIPS and Science Act of 2022 (CHIPS) to provide $53 billion in federal funding for the projects spawned by the 2021 law.
Understanding Chips
Semiconductors, or “chips,” are small electronic devices that power tools such as smartphones, computers, and other consumer electronics, data centers, automobiles, critical infrastructure (e.g., shelter, heating, water supply, agriculture, public health, transportation, security, telecommunications, electricity generation), and military systems. Chips are the foundation of technologies that are created and developed for everyday use.
CHIPS Grants
The U.S. Department of Commerce will oversee $50 billion in federal funding for CHIPS grants for semiconductor research, development, and manufacturing. Specifically, $39 billion in federal funding will be allocated to provide incentives for investment in facilities and equipment in the United States.
CHIPS and Construction
The U.S. Department of Commerce’s CHIPS Program Office has released its first funding opportunity for applications for projects for the construction, expansion, or modernization of commercial facilities for the front and back-end fabrication of leading-edge, current-generation, and mature-node semiconductors.
Project applicants must comply with the five stages of the application process: (1) statement of interest; (2) pre-application; (3) full application; (4) due diligence; and (5) award preparation and issuance.
There are several key areas of compliance with CHIPS that pertain to the construction of facilities outlined below.
- Workforce Compliance: The CHIPS program promotes the use of Project Labor Agreements (PLAs) in connection with construction projects. The benefit of a PLA on a construction project is that it aids in controlling costs and establishing fair wages and benefits for all workers—union and nonunion—on the project. Applicants that submit construction project applications that do not include provision for a PLA will be required to submit workforce continuity plans to demonstrate the reduction of risk of delays in project delivery. Projects without PLAs run the risk of increased costs due to labor conflicts or a shortage of skilled workers, which can lead to mismanagement of the project and poor quality of construction.
- Environmental Compliance: Applicants for CHIPS incentives will be subject to various federal, state, tribal, and local environmental regulations, including reviews under the National Environmental Policy Act (NEPA); will undergo a review by the CHIPS Environmental Review Team; and are required to complete an Environmental Questionnaire for each project. In addition, once the construction of semiconductor facilities is under way, environmental compliance monitoring will focus on construction waste management from onsite demolition; nonhazardous soil removal; asbestos and lead-based paint abatement, transportation, and disposal; and the monitoring of project-specific environmental performance criteria such as dust control, air sampling, and noise and vibration.
- Subrecipient Compliance: Public entities may receive CHIPS funding as a subrecipient or contractor of an applicant with the demonstrated ability to finance, construct, or expand a facility for semiconductors. Federal grants may be subject to compliance with the Code of Federal Regulation (Uniform Guidance). Uniform Guidance CFR §200.331 provides information to determine whether an entity is a subrecipient or contractor. Also, Uniform Guidance CFR §200.332 outlines requirements for subawards to any subrecipient. If it is determined that an entity is a subrecipient of CHIPS, it is important to ensure that the reporting requirements for the subrecipient are compliant with the regulations. However, if it is determined that an entity is a contractor, then they may be required to participate in the federal competitive bid process.
The industry is still in the early stages of the CHIPS grant application process. Organizations would do well to use the time waiting for grant approval to prepare and understand all the federal grant requirements and regulatory guidelines that will apply once federal funding is received. When it comes to the receipt of federal grants, compliance with requirements and transparency through documentation and recordkeeping will ensure that grants are not recouped after funds have been spent due to non-compliance.
Entities seeking expert services related to the implementation of CHIPS funds can review the following regulations:
- Code of Federal Regulations, Title 2, Part 200, section 200.404, “Reasonable Costs”
- Code of Federal Regulations, Title 2, Part 200, section 200.405, “Allocable Costs”
The regulations outline general allowable costs for federal grants. K2 Integrity has provided expert consulting services to various entities in receipt of federal funds to help them ensure compliance with relevant requirements.
