January 30, 2023

CHIPS Act Offers Opportunities and Challenges

Semiconductor chips are essential components of many electronic devices. These include smartphones, laptops, planes, electric vehicles and advanced medical diagnostic equipment. Chip shortages, caused at least in part by the pandemic’s impact on global supply chains, revealed the need for more domestic manufacturing of these items in the United States.

In August 2022, the Creating Helpful Incentives to Produce Semiconductors and Science (CHIPS) Act was signed into law. Mainstream news coverage has mostly focused on how the CHIPS Act will provide $52.7 billion in federal funding to private projects that strengthen the domestic semiconductor industry, create skilled manufacturing jobs and promote innovation. However, what hasn’t been discussed quite as much is the impact the law will have on the construction industry.

More projects in the pipeline

The CHIPS Act is expected to spur new long-term construction jobs. The U.S. Department of Commerce’s CHIPS for America Fund objectives go beyond supporting construction of a few massive semiconductor projects to also focus on the development of regional clusters of manufacturing plants and supplier facilities, as well as research and development and workforce development programs. This could help keep the construction sector on even footing even as the economy grapples with rising inflation.

In addition, the law establishes a new Advanced Manufacturing Facility Investment Credit on capital expenditures, which should generate significant additional private investment in such projects. The 25% investment tax credit will provide a direct-pay, refundable credit for installing facilities with a primary purpose of making semiconductors or semiconductor manufacturing equipment.

Supporting infrastructure for all these facilities will be needed, too. That should mean even broader economic development. Indeed, communities across the country are already approving projects to build and improve roads, water infrastructure and new buildings to pave the way for new semiconductor facilities. These include those in Arizona, New Mexico, Ohio and Texas.

Workforce challenges

Building such facilities will likely require a construction company to have the appropriate skillset and preferably some experience in building semiconductor plants or similar manufacturing facilities. Project teams will need to perform specialized design and construction services suited to the clean building environment, and security clearances may be required. Access to a skilled workforce with security clearance could be difficult in a market already struggling with labor shortages.

Plus, federal Davis-Bacon requirements will apply to CHIPS-funded construction projects, which means workers must be paid local prevailing wages. Those requirements might put many smaller contractors at a competitive disadvantage when bidding, as well as limit the ability of some otherwise qualified and skilled workers and apprentices from participating in these jobs.

What’s next

It’s been estimated that about $33 billion in semiconductor fabrication plants are in the planning stages. As of this writing, with the CHIPS Act firmly signed into law, several large manufacturing-related projects are already moving forward to the construction stage. These include Intel’s new $20-billion facility in Ohio and GlobalFoundries’ expansion of a chip factory in New York.

The Commerce Department intends to continue issuing details about eligibility for funding as well as evaluation and selection criteria for proposals. To stay updated, visit CHIPS.gov.

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