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TSMC's Japan deal has no contract
From term sheet to award
After the term sheets were announced to great fanfare, the CHIPS office felt it was at the 10-yard line. Then came the work of turning them into final awards, and the legal relationship between the government and each company proved very challenging. Open questions included when funds can be stopped or clawed back, each party's termination rights, the dispute resolution mechanism, and the affirmative and negative covenants.
The indemnity problem
Indemnities were among the thorniest. If the government is sued over something that happens at a project site, does the company indemnify it? Those are big open-ended liabilities, so companies and their boards worry about them, and DOJ has guidance on how indemnities can be used. The CHIPS lawyers ended up negotiating with DOJ while the office negotiated with the companies.
A week in Taiwan
One stretch of this happened on a trip to Taiwan, where the team spent a full week in a conference room going through the details with TSMC. A TSMC counterpart, asked how the CHIPS contract compared with the Japan deal, looked puzzled and answered that there was no contract with Japan. TSMC has its agreement, submits invoices, and gets the incentives. That path has its own challenges, including a lot of auditing after the money is paid.
Why are open-ended indemnities such a problem?
An indemnity makes one party pay for losses another suffers, and without a cap the amount has no ceiling. A company's board sees that as an unpriced risk tied to a site it does not fully control. For a federal agency the issue is just as sharp, because the Anti-Deficiency Act bars it from committing money Congress has not appropriated. Open-ended promises to pay therefore draw scrutiny from lawyers at the Department of Justice.
How do clawbacks work in subsidy deals?
Large awards are usually paid out in stages as the company hits agreed milestones, instead of in a lump sum. Each payment is tied to evidence that the work was done. If a milestone is missed, the agreement can let the funder withhold later payments or demand earlier ones back. The terms spell out which events trigger repayment and how disputes over them get resolved.
Why might Japan skip a contract?
Japan's chip subsidies run through the Ministry of Economy, Trade and Industry, which approves a company's investment plan and pays subsidies under it. The arrangement works as a grant program under national law. Payments follow documented spending, and auditors check it afterward. The Board of Audit of Japan is the body that examines how public funds are spent.
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