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Although the United States is a global leader in semiconductor design, the country only accounts for about 12% of semiconductor manufacturing worldwide. Seeking to address this discrepancy, Congress authorized funding to support investments in the semiconductor industry in America in 2021 and 2022 through various acts collectively called the “CHIPS Act.” The CHIPS Incentives Program is administered by the CHIPS Program Office within the National Institute of Standards and Technology (NIST) in the United States Department of Commerce (Commerce).

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NIST released a Notice of Funding Opportunity (the SMM NOFO) on September 29, 2023<a href="#_ftn1" id="_ftnref1">[1]</a> which seeks proposals for federal government funding to support “smaller scale” investments in the <a>construction, expansion, or modernization of commercial facilities in the United States for semiconductor materials and semiconductor manufacturing equipment </a>for which the total capital investment is less than $300 million.<a href="#_ftn2" id="_ftnref2">[2]</a>

Notably, the SMM NOFO does not include fabrication facility projects of any size, which are eligible for funding under a separate Notice of Funding Opportunity released in February and amended in June, the CHIPS Incentives Program <a>– </a>Commercial Fabrication Facilities Notice of Funding Opportunity.<a href="#_ftn3" id="_ftnref3">[3]</a>

The SMM NOFO will award direct funding via grants, cooperative agreements or other forms of transaction agreements with the federal government.

The SMM NOFO seeks applications for the construction, expansion, or modernization of commercial facilities of the following types: (1) semiconductor materials facilities and (2) semiconductor manufacturing equipment facilities.

Semiconductor Materials Facilities. This includes facilities for the manufacture or production, including growth or extraction, of materials used to manufacture semiconductors, which are the chemicals, gases, raw and intermediate materials, and other consumables used in semiconductor manufacturing. Examples include but are not limited to:

Semiconductor Manufacturing Equipment Facilities. This includes projects for the physical production of specialized equipment integral to the manufacturing of semiconductors and subsystems that enable or are incorporated into the manufacturing equipment. Examples include, but are not limited to:

“Construction, expansion or modernization” of facilities can include significantly enlarging an existing facility, increasing the capacity of an existing facility, adding a new production line, upgrading an existing facility, and converting a facility from one to another use.

“Capital investment” includes all costs (inclusive of government funding) required to complete the construction, expansion, or modernization of the project and initiate operation, broken down by category such as land, construction (e.g., labor and material), equipment, infrastructure improvements (e.g., utility plants, access to infrastructure, or wastewater treatment plants), and administrative expenses directly attributable to the construction, expansion, or modernization (e.g., legal, engineering, and permitting fees).

The Department of Commerce will not fund applications lacking “sufficient scale to meaningfully contribute” to the objectives of the SMM NOFO. Notably, Commerce does not expect projects with capital investments below $20 million to meet this standard. Moreover, in the event that a sub‑$20 million project does satisfy this standard, Commerce generally anticipates other stakeholders to complete the project without CHIPS Funding.<a href="#_ftn4" id="_ftnref4">[4]</a> However, NIST also encourages applicants to consider working in consortiums for multiple reasons, which may also increase the overall scope of a project and therefore the overall capital investment.

Economic and national security objectives are emphasized repeatedly in the SMM NOFO and are fundamental to both threshold eligibility and to successfully receiving funding. Some considerations to highlight include:

Foreign entities of concern: The CHIPS Act prohibits providing funding to “foreign entities of concern.” This will exclude certain applicants. In addition, applicants are required to submit <a>Form SF-328, Certificate Pertaining to Foreign Interests</a>, which requires detailed information regarding direct and indirect foreign ownership of the applicant, direct and indirect ownership of foreign entities by the applicant, non-U.S. directors, officers, and senior personnel, contracts with foreign persons, indebtedness to foreign persons, revenues from foreign persons and more foreign influence-related questions.

Intellectual property: NIST notes that it seeks applicants that have a strategy to protect intellectual property including preventing tampering, counterfeiting and theft.

Cybersecurity: Applicants are advised to review the NIST Framework for Improving Critical Infrastructure Cybersecurity and describe their cybersecurity practices with reference to applicable laws, regulations and standards. They should include a brief assessment of any major risks identified and mitigation strategies.

Supply chain resilience and risk management: An application must demonstrate, with respect to the project proposed, that the applicant has an executable plan to identify and mitigate relevant supply chain security risks.

To receive CHIPS funding under the SMM NOFO, applicants must participate in two primary phases:

Phase 1 application forms, instructions, and templates are available at <a href="https://www.chips.gov" target="_blank" rel="noreferrer noopener">https://www.chips.gov</a>.

The CHIPS Program Office will provide more information through subsequent publications and a series of public webinars. Interested parties should routinely check <a href="https://www.chips.gov" target="_blank" rel="noreferrer noopener">https://www.chips.gov</a> for additional guidance on program requirements and procedures.

Preparing applications will require cross-disciplinary teamwork. Legal counsel may assist applicant teams with several key aspects of this process, including:

Advising on national security expectations: Counsel may advise on whether “foreign entities of concern” are involved in a project, completion of the Form SF-328 (Certificate Pertaining to Foreign Interests), applicable cybersecurity laws and regulations, practices for protecting intellectual property, and applicable supply chain risks.

Completing the environmental questionnaire: One of the many application requirements is completion of an environmental questionnaire. Counsel can help companies identify relevant environmental regulations that must be flagged for the Department of Commerce.

Negotiating agreements and contracts: Compiling a successful team will involve negotiating agreements with consortium partners, third parties, and local and state agencies. Counsel can assist parties in negotiating and drafting these agreements.

Negotiating funding instrument: The SMM NOFO is relatively flexible in the form of direct funding. Counsel can review proposed terms and conditions, advise on compliance and reporting obligations, and assist parties in negotiating the grant agreement.

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<a href="#_ftnref1" id="_ftn1">[1]</a> NOFO 2023-NIST-CHIPS-SMME-01.

<a href="#_ftnref2" id="_ftn2">[2]</a> Available at <a href="https://www.nist.gov/system/files/documents/2023/09/29/CHIPS%20-%20Facilities%20for%20Semiconductor%20Materials%20and%20Manufacturing%20Equipment%20NOFO.pdf">https://www.nist.gov/system/files/documents/2023/09/29/CHIPS%20-%20Facilities%20for%20Semiconductor%20Materials%20and%20Manufacturing%20Equipment%20NOFO.pdf</a>.

<a href="#_ftnref3" id="_ftn3">[3]</a> NOFO 2023-NIST-CHIPS-CFF-01.

<a id="_ftn4" href="#_ftnref4">[4]</a> Id; noting that stakeholders include chipmakers, larger suppliers, and state and local entities.

https://admin.thompsonhine.com/wp-content/uploads/2023/11/CHIPS-Incentives-Program-Notice-of-Funding-Opportunity-for-Facilities-for-Semiconductor-Materials-and-Manufacturing-Equipment.pdf

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This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

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CHIPS Incentives Program – Notice of Funding Opportunity for Facilities for Semiconductor Materials and Manufacturing Equipment

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