Are semiconductor manufacturers ready to build US fabs successfully? has been saved
Are semiconductor manufacturers ready to build US fabs successfully?
Megaprojects are inherently risky and companies looking to build new plants in the US face an increasingly challenging environment.
Authors: Mike Whalen, Matthew Wolfram, Lance Kefalos
Organizations looking to capitalize on CHIPS Act funding should also be looking to upgrade their construction project delivery capabilities for these multibillion-dollar investments. A recent study of global megaprojects—projects with budgets exceeding $1 billion—showed that nearly two out of three megaprojects fail.1 Additionally, the lack of capacity and experience building fabs in the United States exacerbates the challenge, as about 80% of new fab construction occurred outside the United States over the past 10 years. The good news is these challenges can be addressed and mitigated if managed proactively.
Develop and implement a fit-for-purpose governance and assurance framework for delivering megaprojects.
Successful project delivery starts with a well-defined approach to project governance, communication, and reporting. Megaprojects are inherently complex and require a comprehensive framework for planning, monitoring, and control. For company executives and board members, accurate reporting and forecasting is essential for decision-making and, in the case of megaprojects, paramount to performing their fiduciary duty to investors. Noted below are actions vital to successful governance and assurance.
Prepare for the risks associated with building new fabs in the United States, including limited resources in both the supply chain (physical goods) and talent (experienced design team/contractor/specialty contractors/internal company resources)
As semiconductor companies increase fab construction in the United States, they should expect to face challenges due to a turbulent supply chain and a labor market with limited capacity and expertise. When preparing risk-adjusted budgets, companies should consider these factors:
- Materials and Equipment–Semiconductor companies are competing at both U.S. and global levels for the same supply chain, and material/equipment providers may struggle to keep up. Cost escalation and extended lead times are risks that must be accounted for during the project planning phase.
- Engineering Teams and Contractors–There is a small pool of experienced fab designers and contractors in the U.S. Design teams and trade contractors, in particular, may not have the capacity to support the upcoming workload as multiple megaprojects begin. Even when the preferred vendor is selected, it may be difficult to get the 'A team.' Companies should be exploring various project delivery systems and contracting methods now, as well as options for joint ventures.
- Internal Company Resources–With the focus having been on building fabs internationally, semiconductor companies have limited capacity and internal expertise with US fab construction. These companies should extend the owner team with qualified megaproject experts who can assist in selecting the proper project delivery system and contracting strategy to align with owner objectives.
- Stakeholder Coordination–Companies should identify the dependencies between vendors, designers, internal stakeholders, and contractors across design, construction, and tool install. Orchestrating deliverables and timelines is critical to avoid project delays and inefficiency caused by scope gaps or duplication of effort.
- Skilled Labor Market–Construction industry leaders in the United States have continually expressed concern with the lack of skilled labor in this generation’s workforce. The scale and specialized nature of fab construction will strain a fragile labor market with limited fab plant experience. Security clearance requirements and federal funding compliance issues could cause additional challenges for the workforce.
- Prevailing Wages–Labor costs could also be impacted by the Department of Labor’s proposal to revise the definition and process for determining prevailing wages covered under the Davis-Bacon Act.2 Minimum wage for construction workers is likely to increase if the proposal is approved.
- Compliance with the CHIPS Act–Projects receiving CHIPS Act funding will be required to invest in small businesses and disadvantaged communities during construction and into operations. Additionally, projects may be subject to enhanced environmental standards and other company-driven environmental, social, and governance (ESG) imperatives. Companies will need to develop plans to comply with funding requirements including considerations around how to invest in skill development for the local workforce. When selecting a project location, companies should also make sure that local and state requirements are met.
Leverage modular design and offsite manufacturing to hedge labor risk and improve speed to market
In recent years, contractors in the United States have increased off-site manufacturing (OSM) efforts to improve project schedules and reduce labor costs by 20% compared to traditional field installation.3 The oil and gas industry has relied heavily on modularization for decades, and the semiconductor industry should look to do the same. OSM strategies must be contemplated at the earliest stages of project planning to maximize opportunities for modularization, scalability, and repeatability. When evaluating OSM options and trade-offs, companies should consider the impact to both the project (cost, schedule, quality, and safety) and the business (speed to market).
How we can help
Deloitte has helped many leading global companies successfully deliver their most complex mission-critical megaprojects. We have also helped companies get their troubled projects back on track. As we work across numerous industries and asset classes, we constantly develop new and unique insights to improve megaproject performance—we bring these insights to our clients every day to help them enhance the delivery of their most important capital programs and projects.
1Ed Merrow, Industrial Megaprojects (Hoboken, NJ: Wiley, 2011).
2US Department of Labor, “Updating the Davis-Bacon and Related Acts Regulations,” accessed October 31, 2022.
3Chris Hermreck, “Offsite Manufacturing (OSM) supports semiconductor’s fast-paced projects,” JE Dunn, 2020.
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