CHIPS Act—Resources and Guidance for Contractors
Following passage of the Creating Helpful Incentives to Produce Semiconductors Act, the construction industry stands to benefit from nearly $50 billion in direct federal funding and additional tax credits in support of restoring U.S. leadership in semiconductor manufacturing, improving the semiconductor supply chain and advancing U.S. economic and national security.
CHIPS Act Legislation
In July 2022, Congress enacted the CHIPS Act of 2022 (Division A of P.L. 117-167), which was signed into law by President Joe Biden on Aug. 9, 2022.
The act appropriates funding for the CHIPS for America provisions enacted in Title XCIX of the William M. “Mac” Thornberry National Defense Authorization Act for Fiscal Year 2021 (2021 NDAA, P.L. 116-283). It also revised the 2021 NDAA CHIPS provisions and established three additional funds to support efforts that seek to address semiconductor-related challenges in defense, workforce and education, and international technology security and innovation. In total, the act appropriates $52.7 billion for semiconductor manufacturing, research and development, workforce training and education, and collaboration and coordination with allied and other friendly countries for FY2022-FY2027.
Of interest to the construction industry, the CHIPS Act establishes and appropriates $39 billion to a CHIPS for America Fund to bolster semiconductor manufacturing capacity in the United States by providing financial incentives for building, expanding and equipping domestic fabrication facilities and companies in the semiconductor supply chain. The fund also provides $11 billion for semiconductor R&D activities at the National Institute of Standards and Technology and in partnership with U.S. industry through a National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program and the establishment of up to three Manufacturing USA institutes.
In addition, a key piece of the CHIPS Act is a new tax credit with a $24 billion price tag. The Advanced Manufacturing Investment Credit is equal to 25% of eligible investment projects and incentivizes building and expanding domestic semiconductor manufacturing facilities.
The tax credit will provide a direct-pay, refundable credit for facilities with a primary purpose of making semiconductors or semiconductor manufacturing equipment. It applies to tangible property that can be amortized and depreciated that is placed in service between Jan. 1, 2023, and Dec. 31, 2026. Projects already underway may qualify.
CHIPS Act Federal Funding
On Feb. 28, 2023, the U.S. Department of Commerce's CHIPS Program Office issued the first Notice of Funding Opportunity to solicit applications for the construction, expansion or modernization of commercial facilities for the fabrication of leading-edge, current-generation and mature-node semiconductors. According to an Aug. 9 release, the CHIPS Program Office received 460 Statements of Interest for semiconductor projects across 42 states.
On June 23, 2023, the scope of the first CHIPS for America funding announcement was expanded to applications for the construction, expansion or modernization of commercial facilities for semiconductor materials and manufacturing equipment for which the capital investment equals or exceeds $300 million.
On September 29, 2023, CHIPS for America released its second funding opportunity for projects for the construction, expansion, or modernization of commercial facilities for the fabrication of leading-edge, current-generation, and mature-node semiconductors with capital investments less than $300 million.
CHIPS Act Categorical Exclusions
Through the Fiscal Responsibility Act of 2023, federal agencies are able to adopt and use another agency’s categorical exclusions to accelerate the project review process.
The Department of Commerce’s National Institute of Standards and Technology is adopting Department of Energy CEs for semiconductor manufacturing projects that receive funding through the CHIPS and Science Act of 2022.
The eleven DOE categorical exclusions can be reviewed here.
Policy Concerns for Construction Contractors Building CHIPS Act Projects
Project Labor Agreements Encouraged But Not Required in NOFO
Applicants seeking CHIPS Act funding must develop a Construction Workforce Plan to recruit, hire, train and retain a diverse and skilled construction workforce and deliver a project on time. (Learn more from this CHIPS Program Office Workforce Development Planning Guide.)
To purportedly achieve this goal, both NOFO's strongly encourage applicants to require controversial project labor agreements (see pages 36-38 of the CHIPS Program Office Workforce Development Planning Guide). The strong push for CHIPS Act funding applicants to mandate anti-competitive and inflationary PLAs on CHIPS Act projects undermines congressional authority because no such language was included in the CHIPS Act legislative text. An ABC-led coalition of construction industry stakeholders fought hard to keep PLA mandates out of the CHIPS Act.
This unprecedented expansion of PLA policy is consistent with the Biden administration’s efforts to coerce state and local governments––as well as private entities––to mandate PLAs on infrastructure projects, all to improve the likelihood of receiving hundreds of billions of dollars of federal grants from the Infrastructure Investment and Jobs Act and existing funding streams. In addition, the Biden administration is pushing private developers to mandate PLAs on clean energy construction projects supported by more than $270 billion in Inflation Reduction Act tax incentives. Finally, the Biden administration has issued a proposal to require PLAs on direct federal construction projects of $35 million or more, which will affect about 120 federal contracts valued at $10 to $14 billion per year.
Fortunately, the CHIPS Act NOFO's do not require applicants to mandate PLAs. However, applicants must instead provide a Project Workforce Continuity Plan in its Construction Workforce Plan, detailing efforts to boost workforce development, minimize labor disputes, enhance worksite safety and ensure adequate workforce pay. ABC and its coalition successfully advocated for an assurance from the Commerce Department that the NOFO does not penalize applicants who submit this PLA alternative.
The September 2023 NOFO contains similar language strongly encouraging the use of PLAs, and while not requiring a Project Workforce Continuity Plan the NOFO states that applicants without PLAs “will need to demonstrate that they intend to take other measures to ensure workforce continuity and reduce the risk of project delays.” (See Page 17 of the September 2023 NOFO).
Davis-Bacon Act Prevailing Wage Requirements Apply to CHIPS Act Projects
Contractors and developers must be aware that Davis-Bacon prevailing wage requirements apply to all CHIPS Act-funded construction projects. This presents additional compliance risks, increased costs and may discourage competition from small businesses and large businesses unfamiliar with Davis-Bacon Act regulations that are typically limited to government-procured and financed projects.
ABC opposed the inclusion of Davis-Bacon Act requirements in this legislation through letters, action alerts and advocacy to Congress. Sen. John Cornyn, R-Texas, offered an ABC-supported amendment to stop the unprecedented expansion of Davis-Bacon prevailing wage policy onto private CHIPS manufacturing projects receiving federal dollars and tax incentives. Unfortunately, by a 58-42 vote, the Cornyn Amendment (Amendment No. 1858) to the Endless Frontier Act (S.1260) was rejected by all Democrats and eight Republicans who voted to keep Davis-Bacon Act prevailing wage requirements in the legislation.
CHIPS Act NOFO applicants should be wary of a new U.S. Department of Labor regulation, effective Oct. 23, 2023, that makes more than 50 significant changes to Davis-Bacon Act regulations. The ABC-opposed rule is expected to reduce competition, exacerbate compliance risks, increase construction costs and ensure union wage rates (and union work rules when the government adopts a union wage rate as prevailing) will apply to more projects, once fully implemented.
Other Concerns
The Department of Commerce retains discretion as to whether the funding under the CHIPS Act will be subject to the Buy America requirements. In the first CHIPS for America NOFO, the Department of Commerce asks applicants whether and how they plan to utilize materials produced in the United States and indicates that usage of these materials may strengthen an application. The NOFO did not prescribe specific Buy America requirements, and, at this time, the program does not appear to have been designated a “federally funded infrastructure project” under the Build America, Buy America’s strict domestic content requirements.
However, if the funding is later subjected to the Buy America requirements, semiconductor facilities constructed with such funds will need to utilize American-made or -produced steel, iron, manufactured goods and construction materials, which will likely increase the cost of construction. Where Buy America required products are not readily available in the United States, a waiver can be sought; however, such waivers are largely discouraged.
The CHIPS for America program also includes requirements for applicants to provide construction workers with access to affordable child care (NOFO page 23). Applicants requesting over $150 million must provide a child care plan, and all other applicants are still strongly encouraged to provide access to child care to the greatest extent feasible.
As mentioned in Construction Dive, these megaprojects, which in many cases are expected to last multiple years and cost billions of dollars, will tie up the local contracting base and exacerbate the skilled labor shortage, which already tops more than half a million people in 2023. Contractors may benefit from 450 government-registered apprenticeship programs offered by ABC’s 68 chapter across the country to meet any workforce development policies.
In addition, these megaprojects typically require progressive design-build and engineering, procurement and construction approaches, as well as heightened security. Workers may need security clearances in addition to certain skillsets.
Finally, CHIPS Act projects are likely to spur additional development of roads, infrastructure, housing and retail surrounding the facility, as well as generate construction opportunities serving the supply chain supporting these megaprojects.
Government and Private Resources