C (3:36)

All that is absolutely true really feels like you're starting from scratch and you're designing, you know, what it is to design a program is fundamentally to design like dozens and dozens, even hundreds of processes, all of which rely on a broad network of humans to sort of bring them to life. I will say we had a couple things going for us that were sort of handed over in that. Right in the beginning, which were quite a few detailees from around the department. I think the senior leadership, including the secretary, had really prioritized this effort. And I think we had something on the order of 30 detailees from across the department who are sort of trying to help us build the thing from the outset. And we had the attention, I would say, of the sort of senior operations and administrative folks from around the Commerce Department who sort of understood that this thing was coming and that we were going to need to ramp quickly. And I think that those set us up really well to get things started.

D (4:35)

And importantly, Secretary Gina Raimondo helped us recruit talent. This was, obviously, it's one of the biggest priorities of the Biden administration, obviously one of, if not the biggest priority for Secretary Raimondo. And she viewed her role and played it exceptionally well as helping to break through barriers for us and helping to be the lead recruiter. And so she would help us individually on recruiting individuals, but also over time, helping to build the culture across the team. The other thing we had was we had some flexibility within the way the statute was created that allowed us to some flexibility in how we designed the program. All those things were important to getting this up and running.

B (5:18)

The other thing we had is just because I don't think Sarah Meyer said it, although I would have thought she would have, which is we had huge amounts of admin funding. Oh yeah, we had $780 million of admin funding because it was like just a thing that sets us apart from most programs. I mean, most people operating government are really hamstrung by budget, by the ability to hire. And in those early days, we were in like full mode of just ramping up and knew we had the resources we need to make it happen.

C (5:45)

So I actually remember like interviewing with you and being like, so like, what do we got resources wise here? And you were like, just don't worry about it. And I was like, that's not really a thing. Like, it is actually a thing that you always must worry about in my experience. So what are you actually talking about? And when you said $780 million, like, that's, it's not right. He's not right. He don't know what he's talking about.

A (6:08)

So in the grand scheme of things, that was something like 2% of the total money allocated for chips was your administrative operations, which is not a huge percentage, but it's more than enough, as you're saying, to run an office over.

B (6:20)

The life of the program. I mean, we had to live in that budget for, you know, we thought 20, 30 years, which is how long the office would probably be around for. But obviously that the shape of that spending would be more early on as you're ramping up, as you're allocating the funds, and then it would ramp down over time.

A (6:35)

And before we go any further, my big interest here is the how the process here. But I just want to, for listeners who are not intimately familiar with chips, just pin down if I remember the chips headlines from 2022 and 23 and little else, how would I know that this was a success? What would you point me to if I'm coming to this fresh to show chips succeeded, that you guys got a win.

B (7:00)

So I think maybe let's start a bit with the problem we were trying to solve. Chips was passed because semiconductor manufacturing had declined pretty dramatically over the course of a few decades, from around 40% to around 10%. Semiconductors are foundational to the entire modern world on the leading edge. So the most advanced chips production had declined to zero. And so we had no Leading edge production. And those are the technologies that are most critical for AI and the technology and geopolitics of the future. And at leading edge logic, which is really critical aspect of supply chain, basically all the production is happening in Taiwan, which is obviously a geography of intense geopolitical interests and sensitivity. So CHIPS is a bipartisan statement saying we have to reverse that trend. That is not sustainable from a national security standpoint. We need to onshore production of semiconductors and really focus on embedded semiconductors in particular. And so that's what we did over the course of a few years. In terms of measuring success, I would say a couple things. One is we actually got it done.

A (8:05)

So which means what?

B (8:07)

Meaning that we actually allocated the funds to live through the program, particularly in my role. I kind of felt like every day it was like just your job to try to push the rock up the hill and keep momentum and not stall out. It's just very hard to execute in government. And so we, in less than two and a half years, awarded $34 billion in final awards. And that's starting from nothing, with no team, no process, no vision, which I think stands up certainly to private sector parallels. If you think about, for example, the private equity world.

A (8:35)

Say more on that. Sorry, just before you go, what's the parallel of the private equity.

B (8:39)

Well, actually, Todd, you should do the private equity parallel. Todd. But. Well, actually, quick story. I remember there was like kind of towards the end of the program, the secretary was. We were meeting with her weekly to go through deal by deal where we were in the pipeline and how we were going to get it done. And, you know, she was really turning the screws, as she should have, to make sure we were going to get it done. But also offering to help. What's he looking at? A call. How can I unlock this to help you guys get it done? And we were walking out of our office one day when we knew we had 15 or 20 deals to close in the next few months. And I said, todd, because Todd worked at kkr, renowned private equity fund. I said, how many big deals you think KKR will close between now and the end of the year? And he was like, two or three. And I'm sitting here being like, wait, we got to. We got to do 15 or 20. That. That seems hard. But Todd, anyways, I'll turn it over to you.

D (9:26)

Yeah, I think people generally don't understand what it takes to get a very significant deal or award done for anybody, but particularly for a very significant set of private sector companies that are Amongst the most competitive in the world. And we were starting from scratch. So you have to do that. In the typical private equity world, maybe a firm would get five or six transactions done in a given year. But remember that all of the processes are in place. They have lawyers that they know exactly all the terms that they need to be agreed so that they can just get it done. And so it's that combination of having to start something up to get people to understand, remember there's a statute, it's not that comprehensive. We have to get the whole process out there. We have to get exactly what the application process is out there. We got to get a portal out there. We then have to get applications in, we have to evaluate them, we have to negotiate them. We have to get a final signed, sealed and delivered agreement in place on how this is going to happen. Not to mention hiring 180 people, getting integrated and creating a culture and creating a spirit of team like all of that in just a couple of years is a herculean task. And I think we're very proud of having 20 finalized awards and $34 billion of awarded funds in that short period of time. That is one measure of success for sure. And the reason you don't give $39 billion to a startup, because it's hard and it's complicated to get it up and running and to acquire the team and to really execute. And that's what the challenge was.

B (11:05)

And then the other obvious measure of success is allocating funds. Awarding funds doesn't matter unless that's having the outcome you want to have. And so what we have seen is a massive amount of private investment catalyzed in semiconductor manufacturing.

A (11:20)

So here in the US here in.

B (11:21)

The US so now it's close to $600 billion in announced investments. There are five companies in the world that can produce leading edge chips. Tsmc, Samsung, Intel, Micron and SK Hynix, that's on logic and memory. All five of them are expanding here. There's no other place in the world that has more than two of those companies. The scale of each individual investment is extraordinary. So TSMC's investment is the largest foreign direct investment in the history of the country.

A (11:45)

How much is that?

B (11:46)

Well, now it's $165 billion, but it was the largest at 65 billion, which was the deal that we signed with them. Now they've announced the full plan to build out their site there. Tsmc, by the way, has announced now plans to build out a second site next to that $165 billion site and TSMC is producing leading edge chips in the United States for the first time in a decade. Any company producing in a decade, including the most advanced AI chips in the world, Nvidia Blackwell Chips. So I think, you know, it's still early innings. This is an initiative for the US government that will play out over the course of decades. But I think where we are in the game, it's looking pretty good.

D (12:20)

But I mean, if you step back and you just think about it in a very simple way. When the Chips act was passed in 2022, the US produced exactly 0% of any leading edge logic or memory chips, all of which are critical to to AI and all GPUs that Nvidia manufactures, not to mention iPhones and other infrastructure. Today we are now on target again, as Mike said, it's early days, but to produce by the end of this decade 20% of all leading edge logic chips in the world. And by sometime in the mid-2030s, up to 10% of all leading edge memory chips. And that's pretty exceptional from a standing start. And those massive investments draw very significant investments up and down the supply chain. So you can't forget about what's upstream of that and what's downstream of that which creates these massive ecosystems that become self sustaining and also support regions and employment and all of those things which creates dynamism in the economy. That to me is what success looks like. Again, we're not there. But all the announced deals and what's being done in the ground right now should get us there in that time period.

A (13:34)

Let me ask you guys about the timeline here. The bill passes late in 2022, you guys are hired on in the months following, and then 2023, what are you guys doing? I mean, day to day, just talk to me.

B (13:46)

Well, so I started September. The secretary said on my first day of work, she was at the White House podium. She said we were going to put out our nofo, our Notice of Funding opportunity, in six months.

A (13:54)

And just to be clear, a nofo, for those of us who are not.

B (13:56)

DC junkies, NOFO is a Notice of Funding opportunity. It's basically how you describe what the application is going to look like, how you're going to evaluate applications.

A (14:06)

You talking to companies saying, here's what we want you guys to pitch us.

B (14:10)

On, here's what you want to do. So those early days are just figuring out like, how's this thing going to work? What are our goals? So we put out what we called our vision for success, clear measures of success. How's it going to work? Like, how's the process going to work? How are we going to evaluate applications?

C (14:26)

But at like the highest of levels?

B (14:28)

Right?

C (14:29)

That's like the first cut of like, how might this work? That you then have like months and months of work to actually say how is this actually going to work?

B (14:36)

Each stage in the process, totally, that's that high level. It's like the basic architecture of the thing that you then have to fill out in a very detailed way. And so you're trying to do that work in the background as you're designing the big picture, you're trying to begin to think through the small picture. We were at the time doing a lot of resource planning. So like Todd, you remember those early meetings with the secretary where we were trying to how many people do we need? How many people do we need? Are we going to be ready? When are the applications going to come in? Really trying to project that out. Basically once the notice of funding opportunity was out there In February of 2023, we wanted to be ready for contact, we wanted to be ready to go. The funny thing that ended up happening was as we built the team, we was that it took companies longer to apply. So there was this weird kind of period over that summer of 2023 where we were waiting and there's plenty to do in terms of standing up the program, hiring the team, et cetera. But in terms of like applications coming in, it wasn't really until late summer or fall of 2023 that we were actively evaluating and negotiating applications.

A (15:36)

And that's because company like TSMC is going to take its time figuring out how we're going to try and angle for those six or seven billion dollars in government incentives. Right? That's like its own massive bureaucracy, its own massive process.

D (15:51)

We control when we put our funding opportunity out. And the rules of the road, we don't control how fast someone responds to that. If you think about it, we thought, and in fact we set the process up in a way so that these leading edge companies could apply quicker than others because we thought they were going to be ready to go. And by the way, I think we got Intel's last application in September of 2023, which was six months after we put out the notice of funding opportunity. So you know, you just can't control these things.

C (16:19)

But by the way, like my view, I don't know if you guys agree, like a little bit of a blessing because by the time we hit June, that's when we were at 100 people and I think actually reasonably ready to rock and roll. Like, not exactly, but like, could actually support an operation. I think the other thing to just note is like the development of the NOFO itself is a thing you negotiate with the interagency. I guess from August to January, there were five official employees, somewhere between zero and 30 detailees and negotiations with the interagency about like, what should be in and out. People trying to wrap their minds around what this thing was before, to be honest, like the program really knew because we were still having to build out the sort of substance in parallel with and then beyond the nofo.

B (17:05)

Roughly speaking, you know, six months to write an OFO means three months to write a NOFO and three months for interagency negotiation.

A (17:11)

Okay, can I have you guys all give me more context there? We've talked about the interagency a bunch over the last two months on StateCraft with a couple different folks from the National Security Council or from the Executive Office of the President. In your experience, I mean, just were you all in the room with folks from this kind of panoply of different agencies and what were they pushing you on?

B (17:31)

So the White House set up some real governance around the interagency that was hugely helpful. So there was a CHIPS coordinator that operated at the deputy's level, that was Ronnie Chatterjee and then Ryan Harper.

A (17:43)

And Ronnie was on a year ago on statecraft.

B (17:47)

Oh, right, right. That's right. He came on. That's right. And they. The coordinator was reporting in to all the relevant White House principals, whether that's Chief of Staff Office, nec, nsc, ostp. So we had a note of coordination, but still it's a lot. The interagency is still a lot. And so you write a nofo, you send it to oira, and your NOFO goes out not only to every agency with a potential interest, but every White House office that interacts with those agencies and has a potential interest. And so for every subject matter area, whether it's national security or cyber or environmental or labor or whatever it is, you'll have multiple sources of input, which, by the way, don't always align. Sometimes there might be conflicts within them.

A (18:34)

And can I just ask, this might be like a really dumb detail question, but what you're sending around to the inner agency is this like a word doc that everyone's adding their comments on is literally a big group project.

C (18:44)

That's right. And then you're responsible for like responding to everything that is funneled back to you.

B (18:50)

And we had like, it was everything from like NASA wanted us to make clear that we'd fund semiconductor investments both on Earth and in space. And that was, you know, we were able to say, like, the statute requires it be in America, which is Earth, but to, like, real substantive debates. And you're kind of in that position. You're kind of like our desires to move quickly. The real way to move quickly is to just accept comments. But if you accept every comment, you lose the thread on what you're trying to achieve.

A (19:20)

You move quickly in this first period, and then you've created all this process for yourself down the road.

B (19:25)

So you're making a ton of micro judgments about, like, what you want to elevate to your boss and all this kind of stuff.

C (19:29)

This was actually a choice. We didn't have to write a nofo. And the NOFO is the thing that required us to go through the interagency process in that sort of more fulsome and traditional way. And I think it's one of those things where, like, it was a particular choice we made that offered us some structure and protection, I guess, from critiques that we were sort of doing it in isolation. But it was a choice and it added time and capacity to the work.

D (19:55)

Yeah, we had early on a bunch of criticism about everything. Vago liberalism. And part of that is trying to find the balance between moving quickly and resolving some interagency issues with getting everything perfect. Perfect. We had designed this in a way that allowed us to have a much more holistic approach so that we felt we could accept some of the comments from a bunch of the different interagencies, move fast, and still have some flexibility on the back end as we made decisions. I did want to come back on the one thing that you were asking about, like what was going on. And I think to try to simplify it, if you put it in a couple of buckets. For the first six months, it was all about getting ourselves up and running and putting rules of the road out for those who were gonna apply. That was, again, hiring people, the right people, setting up a process, setting up an organizational structure. All the things we just talked about. The next six or so months was about starting to engage. Like, now we're out in the world, we're engaging with potential applicants, we're pushing them on what we would like to see. They're writing their applications, they're asking questions, et cetera, until we finally get those applications in and start to evaluate them. Phase three is the preliminary memorandum of Term stage. That is all right. Now we've got all these applications how do we figure out how to enter into agreements on what these deals will look like on a preliminary basis? And that's like a massive puzzle that you're trying to put together and use your $39 billion in an effective way. That was another six or so months. And then the final stage is once you have these preliminary memorandum terms, getting to final, legally binding agreements. That was a very tough process, both internally and externally. That got us to, at the end of the Biden administration, this $34 billion of deals that we had agreed.

A (21:52)

Totally, you guys brought up the everything bagel liberalism critique.

B (21:57)

And I want to brought it up just to be clear.

A (21:59)

That was. Todd threw that bomb into the room. So just for readers who are vaguely familiar, this was. I'll gloss it, you guys, tell me if this is right. A phrase that Ezra Klein originally used and was taken up by lots of folks, including on the right as well. The idea that the Biden administration generally wasn't prioritizing, that it wasn't picking specific targets to aim at and then building programs around them. And among others, the CHIPS program was one of the examples Klein referenced. And I remember a particular thing that you guys were doing that came in for a lot of heat was childcare requirements that awardees, companies that got a sufficiently large award had to have a plan for childcare in their sight. That's one example, I think, of a broader critique, and it's a critique that I'll just say, frankly, I made of the Biden administration and I think I bought at the time about the CHIPS program. But I know you guys, all three of you, have thoughts about that critique.

B (23:00)

Like many of these things, it requires nuance and appreciating the details. Right? And so I think the core thing that the criticism missed early on was how the process was designed. We had set up an evaluation and negotiation process that was highly iterative and was highly holistic. And we had made very clear that our North Star the entire time was going to be economic and national security. And we were very clear about what that meant, as outlined in the Vision for Success, which I mentioned. And then for childcare, the statute required that we ask for a workforce plan that was in the statute.

A (23:37)

Congress made you do that.

B (23:39)

Congress made us do that. And by the way, I think that's fully appropriate. Underwriting these major deals. Workforce was a hugely important priority. We wanted to see childcare as part of that workforce plan in terms of actual programmatic impact. Impact. I think we ended up getting some really positive commitments from applicants, but it was not A sticking point in terms of our relationships with the applicants and.

A (23:57)

Basically slow down the process.

B (23:59)

No, no, definitely not childcare. I mean, I probably spent hundreds of hours negotiating with these companies. I probably spent 30 minutes talking about child care. To give you a sense it was. Our team had worked very constructively with their teams. And I think we came to really positive outcomes. I think extrapolating the big picture is that as long as the implementing agency has discretion to effectively advance the core outcomes, that's a really important thing. And we thought that childcare and workforce in general was an important part of meeting our overall goals. I think where we ran into more problems is where there's an institutional actor outside of the Department of Commerce that that controls your fate and that have different incentives. Those can be real choke points, real veto points, and those can cause problems. And I think that's the fundamental kind of design distinction that should be, I think, understood in terms of lessons going forward.

D (24:56)

Yeah. And I would say that I think this is a really important discussion because making the main thing, the main thing, like if you're doing policy like this, where the main thing is national security, that needs to be the priority. And it is hard to stop other priorities from inundating you when there's like a lot of money around. And every department has their own desires and priorities. And so I do think it is a very important thing for us to discuss as we discuss this for future programs. And I think there's some fair criticism of chips because we didn't get it perfectly right. Like there were priorities that if we were sitting or we would say, like we should remember this is a national security priority. It's not an X priority.

B (25:43)

Like what so.

D (25:44)

Well, you know, labor oriented aspects. There's some rules around things like something called Davis Bacon, which is around prior workers. But ultimately the benefit of this will be jobs. But in my mind, it's not a jobs program. Right. So if we're successful, it will drive jobs. But the balance is complicated to get right. Like, we got a lot of this feedback. And the reality is when you go out and you talk to these companies, Micron, even when this was all going about, was building a big childcare facility in Boise because they recognized in order to get people to come and work for them, they needed to provide childcare. If you go to Taiwan, if you go to Korea, all of these ecosystems have massive childcare facilities because it is all about talent. And if you go out there and talk about what is the biggest risk to this program, workforce is going to be in the top one or two. So we have to also frame that discussion as well.

C (26:40)

I think one reflection I have just about the sort of trade offs like childcare certainly never came up as one of the things we were all sort of wringing our hands over. But like the breadth of a program does make it more complicated internally and it ultimately like puts the keeping the main thing, the main thing on the leadership team to like help manage both process and humans towards those ends. And that's challenging when you hire people who are experts in a particular thing that is included, but not the main thing. And I think about that a lot because part of what we built, I think was a really rich culture with super diverse set of experiences. And I think that made us better overall and also is a really difficult thing to manage when you're trying to drive towards an outcome. And there is one thing that is sort of principle first among goals. I think that that's like in people thinking about everything bagel or not in the future policy design. Like you just have to acknowledge and manage that up front and understand it. It's a management challenge.

A (27:44)

I want to hear where you guys made hard calls in the interagency to keep stuff off of the docket or off the menu. Talked a little bit about it with NASA. You know, no chip fabs in space in this program. And I'm curious for any other cases where you guys try to keep the main thing, the main thing.

B (27:59)

One area where we had a fair amount of friction with the applicants were on requirements related to national security. So, you know, cybersecurity expectations, operational security expectations, use of Chinese equipment in fabs. We were making some discretionary calls around what types of expectations we wanted to set. And they required a fair amount of negotiation and we had to find the right balance. This is all on top of the national security requirements of the CHIPS act, which constrained, for example, investment in manufacturing facilities in China. So that's definitely one area where I think there were real trade off. And I can, I think healthy tension within our teams in terms of figuring out what the right answer might be. Sarah, you want to jump in on that before I do? Davis Bacon or.

C (28:44)

Yeah, well, I guess mine's not so much a policy thing but a more of a. Something that we rejected out of the interagency process, which I'm really grateful that we did, was we were pushed, I think pretty hard for a while to include, as is normally required in Inofo, the reporting requirements up front to just say what applicants or recipients were going to have to report to us. And we were able to hold them off and say like, we are not ready for that. We have so much more to figure out here. And by the way, it ended up taking us like two years to figure out exactly what that reporting was going to look like and how to make it, you know, sort of fit for purpose, not overly burdensome and give us the data that we, we needed. So that, that's one thing where it like it came up, we were able to like hold it off. And thank goodness for that.

B (29:31)

And even Sarah, I remember way after that, I don't know when it was, but it's probably early 2024, you calling me and explaining like, hey, with pra, with the paperwork Reduction act, we're going to have to publish our reporting requirements, you know, in the next few weeks.

C (29:43)

Before these deals are done.

A (29:44)

Yeah.

B (29:44)

My reaction was like now we're not. Because I we knew like these were real commercial things and we were gonna have to negotiate it and like whatever we were gonna have to do, emergency PRA exemptions, whatever it was, whatever pain we were gonna have to take with OMB was necessary. And reporting requirements are really hard. Talk about an area where, you know.

A (30:05)

Like why is that such a big deal? Enlighten me.

C (30:08)

I would say first of all, it's always a big deal in government, like designing what people are gonna have to report because they inherent tension between getting everything the program might usefully use. It's a huge burden. As somebody who's been a state or recipient of federal dollars, all that reporting stuff, whatever might make sense to the federal agency makes zero sense to the people who are actually having to do the reporting. And this is even like tension beyond that because it's sort of a commercial actor and the federal government. So I think it's always hard, number one. And PRA just like makes it so that you have to anticipate what that's going to look like and pretend that you can really understand the trade offs between the burden and the benefit in advance. But then in this context it's even more complicated because these are different deals, different substance, different actors, different operating models on their side. And not to mention the fact that we are actually having to build the reporting system that's going to ingest all this information.

D (31:04)

In my mind, reporting is important for two reasons in this particular context. Number one is accountability. We're betting on what we said up front. We're going to have 20% plus of leading edge logic. We're going to have, you know, X of these types of chips and so being able to actually really understand the progress that's being made and if that is actually happening on time, on schedule, and get access to that information is pretty important. The second piece that I think is important, but not everybody might, is over time, there's so much rich information out there about how our ecosystems in the semiconductor industry are developing and where the weaknesses are and what other things we might need to incent or support that. Being able to create that right relationship and have some of the data at your fingertips to really be on your front foot as opposed to just checking boxes. If people are doing what they said they were going to do, I thought was important. And that drives what you want your reporting requirements to be. And so that was part of the tension. At the same time, you want it to be as light touch as possible. You don't want to create too much hassle for the companies. But that was what we were trying to struggle with. The other. I don't know, this is really not an interagency thing so much, but there were lots of internal debates, I think, about something like stock buybacks, but I'm not sure we want to talk about that. So let me ask Mike at and Sarah whether you think we should go for it.

B (32:30)

Yeah, go for it.

D (32:31)

You know, I mean, to give you examples of how the different sides of the political spectrum and the White House and otherwise, like stock buybacks were a big thing for certain parties on the left.

A (32:42)

Just to be specific, there were parties that were really opposed to companies that were receiving these funds doing stock buybacks, buying back their own stock.

D (32:50)

Obviously, none of our money could be used to do stock buybacks. That was clear. That was in the statute. The question though, then is, can companies do stock buybacks at all? This money is fungible because money is fungible. Yes. And you have to realize that what you're trying to do is you're trying to engage and incent the private sector and the markets to work. And we were not. We'll probably talk about this. We were 5 to 15% of the total money was coming from our office. And the majority of the money was being put in by these companies. Companies who have to go out and talk to investors every single day. And so trying to make sure what you're focused on is getting these companies to make significant investments in the US in both capital and R and D. But if there's money after that, allowing them to engage with shareholders and give some money back to shareholders and dividends and stock buybacks is not crazy. And so trying to Focus on what are we really trying to do, and then allow companies to engage with the market and develop the market and the investors that they need. It was very complicated and finding the right balance there, which I think we did. But finding the right balance was very hard.

A (34:00)

Let's talk about Davis Bacon, our favorite topic. You guys love Davis Bacon for listeners. Davis Bacon is a federal law that requires that federally funded public works projects. I'm glossing this, but requires that contractors pay construction labor the local prevailing wage. You mentioned, Todd, that this posed some issues for you guys. I want the details.

D (34:22)

Davis Bacon was passed in 1931, right? Herbert Hoover administration in an effort to create local construction worker markets. So there are lots of things about Davis Bacon that are a bit anachronistic. But, you know, we all agree with the intent of paying local construction workers prevailing wage. The challenge is it had never been applied to something like we were trying to do both the scale and the magnitude. And there were tens of thousands of workers on a site like TSMC site in Arizona. And they come in and out because they're different types of contractors and subcontractors. And part of what we were trying to do here, because we weren't paying for 100%, because the companies were paying for a significant amount, we were trying to get people to start their work before they got the rewards so we didn't lose time. And so that created a retroactive issue. What happens to all the work that was done before you actually got an award? And that had never really been dealt with, I don't think, at the federal level for Davis Bacon historically. And so that was really the issue and the challenge that we and the Labor Department and others were trying to deal with. And there's a whole administrative burden of tracking of, you know, how do you go back in time for tens of thousands of workers with hundreds, if not thousands of subcontractors and figure that out? So those were some of the challenges.

B (35:46)

On the question of paying prevailing wage. We got very little pushback from industry. The industry got it as part of the deal. It was in the statute, it was manageable. It was in the execution with these administrative details. And for fabs under construction, our strategy was to say to companies, we see you're building fab one, we want you to build three fabs. So we'll fund a little bit of Fab one and then use that as negotiating leverage to get commitments for Fabs 2 and Fab 3. But by taking money on that first Fab it required, it triggered this retroactivity issue, which is to say that everyone who's, who's done work on that fab, you need to look back and figure out if they were paid Davis Bacon wages. And that requires tracking down potentially, you know, 20,000 employees who are no longer on the site. And, and that was an administrative challenge that was very, very difficult to work through with applicants.

A (36:37)

It seems like there's a kind of a through line with laws like this. I mean, you can look at nepa, which we've talked a lot about on this podcast, or Davis Bacon, where the concrete requirement of the law is actually not as burdensome for you guys executing it or for the people being paid, but the process is way more burdensome in some ways than paying a little bit extra in wages. Is that right?

B (37:02)

Yeah, I think. I mean, I think there are different contexts. I think one thing that is important about both NEV and Dave Spacing is there are fundamentally they're governed outside of the implementing agency. So David Spacing of the Department of Labor, NEPA ultimately ends up in a court.

A (37:16)

So a judge determines your fate, the.

B (37:18)

Judge determines your fate, which is a terrifying thing if you're trying to execute industrial policy. But I think there's probably some similarities in both instances. You have in the Davis Bacon case a high volume of regulations and administrative case law that's built up over time that really is mostly set up in context that's very different from semiconductor manufacturing. And so it's a question of how do you kind of reckon with the existing body of regulatory and administrative law in this really new context where you're trying to do something big and new and different. And then nepa, I think similarly you've seen an increase over time of what NEPA expects, and that is driven, as I my sense is, by litigation. And you know, a judge can ask for more every time there's case law that triggers then an expectation that the implement agency is going to do more for nepa. And that I think accumulates over time. But each of them probably share that characteristic. I think that's probably fair to say.

A (38:22)

Let me move to. You guys talked about the. You have the notice of funding opportunity. The companies take a while to get back to you. And by this point we're in late 2023 and then spring 24, as I understand it, you guys are starting to try and get these deals done or at least land the final details. Tell me about that. What was your strategy there? As you guys and your team of somewhat north of 100 people are negotiating with some of the biggest companies on earth.

D (38:47)

Gosh, sorry. PTSD is coming back. I think the most complicated period of time was trying to get these preliminary memorandum terms. We put preliminary offers out on the table starting around Thanksgiving time of 23. And then it took time to negotiate those. Now, remember, from, for example, we had $70 billion of requests from just the leading edge that we're going to get, some subset of the 39 billion. So we had, you know, the expectations were way too high, and so we had a lot of negotiating, and we only had a set pot of money. You have to figure out how much you're giving to each of them, and you're negotiating all of them at the same time and trying to get that puzzle to come into place. So between November and probably March or April, that was what we were trying to do, particularly with these big puzzle pieces.

A (39:48)

And just to be clear, the leading edge companies between them, ask for something like $75 billion, and you guys end up giving them something like $25 billion. So you, in the process of negotiation, you cut them down 2/3.

D (40:01)

That's correct. And by the way, I mean, we focus on the big numbers. There's also like a whole series of, when are we going to get that money? And on what. What benchmarks and what milestones and how much comes early versus later. And so there's a whole, like, I know everybody focuses on the big numbers, but there's lots of things in the mix that are there, too, that period of time. Again, these are the world's most valuable and sophisticated companies in the world for a reason. And so negotiating with that group of people simultaneously to try to get these puzzle pieces come together took a lot of time.

A (40:36)

When you say that, Todd, can I just push. Are you saying that these companies are hard negotiators?

D (40:41)

I think they're both tough negotiators. And also there's a reason for the chips act, right? I mean, TSMC has a credible option to do their fab. More fabs in Taiwan than in Arizona. Micron has fabs in Singapore and in Taiwan and in Japan. And so they're making a real choice of what is the amount of money that will make it positive for us to really go forward and put all this capital. And so you're trying to find that right balance.

C (41:14)

Well, I think the other thing that is unspoken here, but you sort of referred to it early, Todd. The first time we're doing any step in this process, it's the first time we're doing it. And so, like, in the context of negotiation, like some Little thing that we think is straightforward all of a sudden becomes a big issue that we need to take back and figure out internally. And that happens at every step along the way because we haven't. There's like, net new issues that we as a team hadn't considered and we haven't considered in the context of, like, maybe this is commercially reasonable, but, like, does it work with federal dollars to go from January 23rd with the five or six employees and a handful of detailees and fast forward to pmt, like, leaves out quite a lot which is not relevant to the. To the negotiation indirectly, but it actually all. I feel like if you had asked us, by the time we got those PMTs, like, even on the table, the first one, everyone was exhausted. We had done so much process design work, like, literally every single thing, from accepting the applications to, like, how the investment committee was going to work. And I will say, like, if you asked us then a year later how, you know, Thanksgiving 2023 felt relative to Thanksgiving 2024, I don't think we realize how much more intense it could have gotten. It was just this escalating intensity because.

A (42:33)

You'Re sprinting to stand up this thing, and then what feels like at the end of the sprint, you start negotiating with some of the biggest sharks in the world.

C (42:41)

I think just for context, when you are standing up a program from scratch, what it means is every single process you run, so every microprocess you run, you have to design. And that is a gift. As Todd said in the beginning, when you start with nothing, you get to choose and you get to lear from all your prior experiences. And it's real hard. So we go through a process. It's super painful. We iterate. Well, I know our colleague Sarah is going to talk about this. You sort of iterate on the process, but the minute the process that you're focused on right now is kind of stable, you're on to the next thing. And even before that, you're on to the next process. And we were in sort of constant, you know, designing, testing, implementing, and then just repping out processes from January of 2023 through January of 2025. And we did not stop.

B (43:36)

One example of that, that maybe adds a little bit of color is our first announcements were not actually big deals. They were two small deals. We announced this company called bae, a small defense manufacturer company called Microchip. These were our first PMTs. One of them, I think, was 37 million. The other was, I think, 160 million.

A (43:55)

So tiny in the grand scheme. Of things.

B (43:57)

Yeah, yeah. After we announced bae, it felt like this herculean thing. And I remember we had an all staff meeting like right after. And I said, congratulations guys, we just need to do 1400 more and then we'll be done with the program. So the core governance of our investment process was investment committee. And the investment committee had to evaluate the economic national security benefits, sign off on the merit review. But another really important function which is figuring out the right size of the award. And we had created a framework for sizing awards based on the rate of the return of the project. And we, the basic idea was, on a project level, we need to make this project make sense for you economically. We needed to make what's called your hurdle rate in corporate finance. And so how much of our money is going to be necessary to get you to meet that hurdle rate? But that is as much art as science. There's just like a whole bunch of questions about how you design that, how you think about that. And I remember for those early deals, we were just spending hours in investment committee trying to figure out how to make this IRR analysis work, like how to really think through sizing. And I think a lot of people on the team were terrified because they were like people on Todd's team who we were torturing with. All our questions were like, if you're asking about this for the small deals, how are we going to do the big deals? But really what that meant was we were building the muscle. And for every time we went through something new, we had to build the muscle. We kind of got to a point of, you know, feeling confident that we had kind of cracked it if it wasn't working well, we had to go back and reiterate and do new process design just to create as much efficiency as possible while maintaining, I think, the standard we had set for ourselves in terms of analytical, rigorous.

A (45:39)

Right?

B (45:39)

Yeah.

D (45:40)

And this was modeled as a world class investment firm where the returns were not financial, they were returns to national and economic security. And we were trying to create the rigor and the learning and the culture between lots of different people. Me with an investment background, others on the investment committee that come from the semiconductor industry and had deep technical expertise. Mike, with his background in government and trying to get everybody around a table to really understand what a good investment or grant looked like so that we could start to put some bounds around that and create consistency over time. That is a hard thing that when you're at a company or an organization, you don't even recognize like the norms and the processes that are in place. We were putting all that in place at the time and it was hard.

A (46:31)

Right, and you came from an environment, a professional environment where the way the investment committee works is like a, the way you invest. This is all fundamental norms. And in some ways you had to rebuild this for a bunch of folks who have no experience on Wall street or in the, in the boardroom.

D (46:46)

Yes and no. Like, I mean the core investment team all had experience there. And the whole goal of any, well, it's really any decision making, but certainly any investment decision making is how do you get people that come with diverse expertise and diverse viewpoints around a table where everybody's incented to voice their views and you make consistent and good decisions? Like that's what we were trying to embed in the system. And so we, we had hired many people that were worked at some of the world's greatest investment firms. Blackstone, Goldman Sachs, you know, a lot of different growth equity, venture capital firms, etc. So you know, we had a good.

B (47:28)

Group of industry backgrounds, industry background.

D (47:32)

And then we had a whole group that had semiconductors that were chief technology officers at, you know, global foundries like that really worked at intel that worked in the industry for 20, 30 years. Mixing that with the relevant expertise in national security and the relevant expertise in workforce and environmental, you know, that was the challenge. And ultimately I think the magic of.

C (47:55)

The magic totally alchemy, Alchemy, alchemy.

A (47:59)

Put a pin in this. Now I want to come back to start with you Sarah, in a second on the hiring and getting those people from Wall Street. But just to stick with the timeline here, I'm going to go back to 2024. So those are the two small deals. You guys land small, you know, in air quotes. And then if I remember correctly, TSMC is the first big one. Is that right?

B (48:19)

I think we announced intel first. I think it was intel, then we did TSMC shortly after that and then Samsung and Micron. So those are our big four.

A (48:30)

Mike, you and I were talking recently about you flying to Taiwan for some of the negotiations with tsmc and I think that some of those stories are worth telling here.

B (48:41)

Yeah, well, all right, so this is actually in the fate, this is post signing the preliminary term sheet and we had signed our preliminary term sheets with the big four, Intel, Micron, Samsung and tsmc. We had active negotiations ongoing with a set of smaller but really, really strategically important deals. They were kind of our mid sized deals. Companies like Amcor, sk, Hynix, Hemlock, et cetera and we also had Texas Instruments, Global Foundries, Legacy. So we had. The portfolio was really taking shape. And, you know, the next question was, okay, we have to get these term sheets to final, final award. And I think there was a sense, we knew that we were going to have to negotiate a lot of the details around policy commitments. So things like workforce and environmental, that had been a really big focus in terms of figuring out what our priorities were going to be. And then there was this general sense that the lawyers on both sides were just going to have to figure out the detailed terms.

C (49:42)

And.

B (49:42)

And when we came up with our draft award documents and we sent them out to market, the initial reaction was very, very negative, really. And really not on the policy stuff, but on just what is the core legal relationship between the United States government and these companies?

A (49:57)

And just in a nutshell, what were these companies upset about?

B (50:00)

It was, you know, conditions, precedent and reps and warranties and covenants.

D (50:06)

It's all about where the risk is, who bears the risk, and when can.

B (50:10)

We stop funding, when can we claw funding back, how much discretion does the government have? And the default, when can the government terminate the agreement, when can the company terminate the agreement? And the default in federal programs is to give the government a huge amount of discretion. But that is not something that these companies were used to seeing when dealing with, say, Singapore or Japan or these other countries. So it became something we had to manage very aggressively.

D (50:34)

The feedback that we were getting from the companies was, whose risk is. Is this the US Government's risk? Is this our risk? And recognizing that these are not a one and done agreement. These are agreements that are documented over many years, they're making commitments over many years, they're getting dollars over many years based on milestones, et cetera, and not knowing, like, who is, who is going to be their counterparty over time. And they were making decisions on making billions of dollars of investment based on how much money they were getting. And they wanted certainty that if we hold up our end of the bargain, we're going to get that money. And that was sort of the nature of balancing risk that they were focused on.

B (51:16)

So we went as part of that. I think In June of 2024, we took a group to Taiwan to negotiate these details with tsmc.

A (51:24)

And just to be clear, you guys hadn't expected to have to do that. You thought at first this is primarily the lawyers.

B (51:30)

I think we had hoped that it could kind of be worked out in the legal details. And then it became very quickly the case that at least Todd and I had to become personally very involved in truly understanding the structure of the agreement, where the pain points were and navigating towards a solution. And so we spent days in conference room in TSMC headquarters just working through these legal details. I mean, I remember, you know, one of our lawyers explaining to them what the Fly America act is. And I'm sitting there thinking like, what is the Fly America Act? I don't, you know, like, which is, I guess so the Fly America act is a cross cutting statute that says if you receive federal dollars any the dollars can't support travel that isn't on U.S. airlines. Right. And so they're kidding, they're thinking like, yeah, no, this is. And so we're kind of explaining that to them and they're saying how can this work?

A (52:20)

And they have to, they have to document that when they fly to the US they're not flying on a foreign flag carrier.

B (52:27)

Yeah, I think for Fly America act it ended up being specifically for like if you use our dollars to do it. So then they were like, okay, but it's just like an example of some of the what you're waiting through kind of within our legal construct. And then I like, I remember then, so we did like a week in Taiwan and then the TSMC team came and we did a week in D.C. and you know, everyone was tired and everyone just wanted to be done. And we were grinding through the details and so to keep morale up, we worked with Ryan Harper in the White House to do bowling in the White House with the TSMC Group. And it was awesome. It was so much fun. It was kind of great for the deal and great for our relationship with them. But I remember talking to one of their lawyers, like their key lawyer on the deal, who's like this unbelievable lawyer. He knew US law so well, very tough negotiator. And I remember asking, okay, let's be real, like how does our contract compare to Japan's contract? And he's like, what are you talking about? He said, well, your contractor with Japan, what does it look like? He goes, oh, we don't have a contract with Japan. We just submit evidence of our investment and they give us the money. And it was that probably undersells the complexity of Japan's system, etc. But it was like such a stark indication of the difference between our system of government and our legal system, probably more generally, and how some of this works in other countries.

D (53:48)

The way that we were thinking about this, you know, we, we needed to get one of these agreements to land right. Probably yeah. When did we go to Taiwan?

B (53:58)

June, I think. June. June.

D (54:00)

We're sitting there in June. And I think there was nobody on the team that thought we were actually going to get all these deals done because it just felt like the system was clogged up. And so Mike and I felt we had to get involved, we had to land. And if we could land tsmc, if we could say, look, the most important company in the semiconductor industry has agreed to this agreement, that would sort of open up, we'd have an established agreement that we could then move much more rapidly with others. That ended up being true, but it just took longer. The other thing I'd say is if you back up, just take intel, for example. Intel, we sent the first PMT preliminary memorandum of terms Thanksgiving of 2023. I flew out on the Monday after Thanksgiving to Santa Clara to sit down and meet with their CEO and senior management team to talk about this PMT. We announced the Intel PMT on March 20th. So four months to sort of finalize and negotiate and get all that. That in. We thought that once you had these PMTs in place, that the next stage would be easier because of what Mike just said about the complexity of just the agreement and getting TSMC there, as well as, like, lots of different things that happened post pmt, including with. With intel and their summer August results announcements where their stock went down by a significant amount. You know, they ultimately fired their CEO. Like, all of these things were happening after we announced a pmt. And so this space between you have an announced agreement and everybody's excited because we think we're close to the end, and then actually getting a final agreement in place for all of these, for all of those reasons, was very, very.

B (55:53)

Complicated and required a huge amount of governance within the team as well, because we had to figure out how we could make quick decisions on some of what the companies were asking for. And so Sarah stood up internal governance committees so that she could resolve issues or we could escalate them and design together. But we got to a point where you might be spending eight hours with a company in an office. And usually these meetings work. It's like you spend three hours negotiating, and then maybe you break up for an hour to see can you make a decision at an impasse that would unlock it, to move the thing forward so that by the end of the day, you have a real path forward. And it did get to a point where, like, we would break out, we would make a call because, you know, we were able to quickly, you know, call the General counsel, or just come to a decision internally or whatever it was, and come back in the room and say to the company, okay, we're good to go with X. Like, can you deal with that? And then they would often say, oh, no, like, we're still waiting for legal to get back to us, or, you know, we need to, you know, our head of finance is on vacation, you know. And it was this funny thing where, like, it got to a point where we were feeling so much urgency and we had created a pretty nimble structure that it was the bureaucracy of the companies that were sometimes what we're holding.

A (57:06)

And what's the structure there that lets you move faster?

B (57:09)

The structure is a couple of things. One is some governance within our team. What do we call it? A steering committee, Sarah? Right. We created a steering committee within our team.

C (57:18)

Yeah, we had office hours and steering committee, both to sort of establish, to decide and litigate between the teams what we would be looking for in due diligence. And also what would be our sort of policy terms going out to companies in that first iteration of the term sheet, but then also to sort of wrestle with decisions along the way. So, I mean, we just, we built like a ton of process around this stuff. And the thing is, we found once you create some structure and formality and you do a couple reps, then the sort of. You have precedent, first of all, for like, some decisions. And so that gets then easier. We also just had like a bunch of. I feel like every week for a couple of months there, like, I would pull together, like the two of you and the lawyers to say, okay, what are the issues that we are still dealing with that we need resolution of? And a lot of them were going back to the department's general counsel to really, like, have you guys.

D (58:15)

Yeah.

C (58:16)

Negotiate. But internally, I feel like we also just ended up being able to send the signal, like, these are the things that are going to drive the day.

D (58:22)

Yeah, I mean, I think, Sarah, I think we, in addition to what you said there, I think we also had two times a week we would get together and just go through our priorities, where we were, what needed to happen as our core team, in addition to the. Oh, yeah. Individual.

C (58:38)

Oh, yeah.

D (58:39)

Again, like, part of it is. It's just how do you execute? And you need to have real decisions, make clarity of decision makers, clarity of. And a willingness to, like, make decisions quickly. And then a structure around that that just says, all right, like, what do we have to do this week? And then later in the week, what haven't we done? What are. It's not rocket science.

C (58:59)

Yeah, that's right. I would say, though, that, like, there's a distinction in my mind between, like, the meetings that are really, like, you're teeing up something where people on our team have differing views and. Or we're sort of negotiating with legal versus the engine of the. Like, processing all the transactions and getting them from start to finish. I would say on the latter, probably somewhere between like, five and ten meetings a week. If you think about all the different levels of the org that were, like, had to go through the list every day and say, all right, what's happening? Who's responsible for this part of the process? We could. Sarah and. Oh, and I should spend a long time sort of documenting what that actually looked like.

D (59:37)

I wouldn't underestimate that, because creating the battle rhythm in any organization, government or otherwise, to get something done on the right time frame and make decisions quickly is critical.

B (59:48)

And that started with the secretary. I mean, I said early. Like, when we got to this phase, it was every Monday morning with the secretary. The only briefing material you had was your tracker. We would. We would print out our tracker deal by deal, and talk about where we are. And then the other thing that, from a process standpoint was hugely important is we got to it place where we had a hugely constructive and regular dialogue with the general counsel. And so she always knew exactly where we were in every deal, what the pain points were.

A (60:16)

This was the general counsel of the.

B (60:17)

Whole Department of Commerce, of the Commerce Department. You know, there would be times where we would have a company in the building if we reached an impasse. We'd call her up, say, hey, we need you down here at noon. Can you make it work? She said, yeah, I'll move my schedule around. She would come in, she'd negotiate. So, you know, maybe the secretary would stop by not to negotiate, but to give a little pep talk, morale boost kind of thing. It was all those kind of things that we had to. To just kind of break through impasses.

A (60:43)

That's great. Let me ask, just to go back a second. In these big deals, what I'm hearing from you guys is some of the things that were publicly reported as roadblocks or slowdowns, like these child care requirements. And the things that were roadblocks or slowed you down were often the financial details or the risk management. And what I want to get from you guys is, like, in practice, in your experience, where did slowdown happen? Because, you know, my bias here is going to be like a Lot of it is these broad regulatory things like Fly America or Davis Bacon or nepa. And one thing I'm hearing at least from you Todd, is like a lot of it is figuring out complicated financial deals takes time. And it takes time in the private sector too.

D (61:31)

Yeah, I think up front, particularly in the PMT stage, I mean ultimately the commercial deal, how much over what time period, what are the milestones that took by far the longest period of time. The next is all of what we've talked about on the contract. And that's not like specific like Fly America or whatever. That's about this. I look at it as typical contract negotiation in almost any large private sector deal. Like you're always trying to find where on this continuum who's got the risk and negotiating that we were doing it for the first time. The government is used to having all the power and these are big organizations that are trying to find a more reasonable like where are you on the fairway? And that took a lot of time. Time. Most of the other things that are talked about, this is my opinion, but maybe Mike and Sarah have other views. Did not take a lot of like there was not like any of the workforce or child care or things like that. There were a few things like there for some of the companies. There were some specific national security things that we really cared about. I thought those were important. We all did. Some of those took a lot of time. And then there's the classic things like NEPA and Davis Bacon and a couple of areas that for in specific circumstances took a bunch of time and discussion in our own understanding to, to really get there. But those were one offs dependent on individual companies situations.

C (63:00)

I would also offer that like to the extent there was something like a niche thing that was holding anything up, we wouldn't have let it. Yeah, I don't, I don't know how else to say it. Like we would have reorganized ourselves in service of the real mission and the highest priority things if something that was like included in the panoply of requirements and policy desires had threatened to derail.

B (63:23)

But that gets to the core point of earlier, which is where does discretion lie? And are there other institutional actors who can hold you up? And so for Davis Bacon we did have some real challenges in that context. And I think nepa, we have to acknowledge we ended up with a statutory carve out for most of our projects later on. Yeah, later on. So we had already worked through the nepa. We had actually already posted public environmental assessments. I think there were some clear signals that litigation might be pending. And then Congress intervened and so that's ended up being an important part of the story as well.

D (63:58)

And by the way, while it ended up sort of not being that critical because of Congress intervening, we knew up front that NEPA was going to be a big challenge, because it is. And so we set ourselves up to be able to serve that. We had an incredible environmental team that was very proactive and we asked for information early and we worked with these teams early. So there's some lessons in there. Even though NEPA ended up being legislated.

A (64:22)

Away, Congress sorted it out for you.

D (64:25)

That even if they hadn't like the way we set that up and knew it was an issue and put people in place and process improvement place and gotten ahead of it, there's probably some lessons there for some.

C (64:35)

I think that is like the core lesson, Todd, for all of our work, honestly, that like we can do people standing up new programs or trying to make their own programs better can do a lot of complaining about how hard it is and that's fine. And maybe Congress is going to come to the rescue. And also you got to just get ready to do the work. That's what it comes down to, I think. And we in a lot of cases took a lot of pain and did a lot of extra work. Maybe we didn't need to because. Because it was easier and a better use of our time to just like get to grinding than it would have been to fight the thing that was frustrating or seemed inefficient to us. And I feel like that was certainly the case with nepa. We would have done the work and done it as well and as efficiently as we possibly could have, even if the outcome that we actually had was sort of better.

D (65:24)

And honestly, going back to David Spacin, like, if I had one regret on something like that, like you, I had no idea what Davis Bacon was. And I think we didn't realize that that was going to be an issue. We knew NEPA was, we didn't know that was. And we would have set ourselves up differently, we would try to get ahead of it versus we ended up being behind the ball there. We haven't talked about this, but I do think it's important the way that we set up the decision making process. We keep saying it was holistic and we had a lot of flexibility. But most grant programs like have this scoring mechanism, three people score it, average it out and then, you know, let the chips fall where they may. No pun intended. We didn't have that. We had a Much more holistic process where we were clear that we had these six categories. And the first category, national economic security, was the most important and was going to get the most importance in any decision making. But there were no formal scores or anything like that. And so while we had a lot of things in our application that said we need to see your workforce plan, we need to see your child care plan, at the end of the day, that didn't mean that there had to be something really specific on that we could make some decisions on. This is so important to national security that we're not going to focus so much over here and these issues don't really matter as much. So our judgment up front to the everything bagel point was, yes, we are comfortable letting people give us their child care plans and environmental plans and workforce plans, et cetera. Because at the end of the day, we're not saying, and you must do this, we're saying we're going to take that into consideration in a holistic way and make determinations. And we had the flexibility, not total flexibility, but we had pretty good flexibility to decide what was in the final award documentation.

A (67:16)

What I'm hearing, and tell me this is right, is like, you know, if somehow one of these really big companies that you felt for national security reasons we had to strike a deal with, if they hadn't made the cut on this kind of paper metric, you had ways to make sure that you, you could still find a grant.

B (67:30)

They needed to meet a minimum threshold, like for each of our six categories. But beyond that, we had meaningful discretion. And the funny thing, to your point, it was like, that's actually something I personally thought about while we were designing the process, because if we had done the default point setting, 6 points for this, 8 points for that, et cetera, and you're kind of wash yourself of discretion. The comfort in that, in a sense, is by getting rid of administrative discretion, you are getting rid of oversight risk. Right.

A (68:02)

Because we're being fair.

B (68:03)

Yeah, we're being exactly fair. We're doing exactly what we said, et cetera. Except I had this almost inverse intuition, which is if something like TSMC had ended up not meeting a threshold for some reason that we didn't foresee because this was so complicated and designing evaluations up front is so hard, it would be like the guy in my position that had to like, figure out how to change the process so that it was above the threshold. And that's like not a huge oversight risk. That's a huge oversight risk. Right. And so, you know, one Thing that I ended up with a really good relationship with the lead lawyer on this was we would say, like, we need to design this process based on how we're actually going to do it, right? Like, how do we actually want to do this? And then design the process around that basic intuition. We weren't perfect in that, but I think we did a pretty good job.

D (68:51)

Another example in there that was a little bit atypical for these types of programs is typically there's not a lot of, like, proactive outreach and engagement with the applicants on a regular basis. And part of our effort was we wanted to proactively shape what was coming in. We didn't want to just do the things that the companies wanted to do. We wanted to push the companies to do different things. We hired a team of people that could, you know, truly engage with these companies in a sophisticated way. Most grant programs are set up where put in your application. You know, maybe we'll set up one or two conversations so that, you know, everybody's treated the same way. And so we had to structure something, meant there's a little bit of risk in it, but everybody got comfortable so that we could regularly engage regularly, push back regularly, try to say, hey, you should do more here and less here, because that would be more powerful for, from a national security perspective. So that aspect too was quite different. And it's again, if you want to be risk averse and make sure, like, you have zero oversight risk, and you would have gone a different direction, but you might also not get stuff done or not get as much done as you otherwise could.

A (70:05)

Todd, you're making me think about conversations we've had here about the fda. The Food and Drug Administration, which is maybe at one end of this pendulum, has an incredibly formal process to rule out any risk of, you know, accusations of tampering or political interference. But what you hear from companies that try and go through the FDA drug approval process is just, you get no guidance. You have no idea what you're doing. You're throwing your application over a wall and then you wait and you don't know why you failed or what you needed to do.

D (70:34)

White smoke to come out of the Sistine Chapel.

A (70:37)

Yeah, exactly, exactly. Tell me a little bit more about oversight risk. Because in classically, if you don't know anything about Washington, I think you hear about inspector generals or congressional oversight committee, and you have just a generally positive impression. Those are the folks who keep programs on the rails. And so I think it's always, if you're. You guys might be See, Todd is rubbing his eyes, and Sarah is shaking.

D (71:01)

Her head.

A (71:03)

No, but I actually want to insist on this. I think most people who don't, who aren't familiar with this, think, right, the inspector general roots out waste, fraud, and abuse. Congressional oversight stops you guys from cheating at things. And so you guys have this kind of visceral reaction to that, but you should actually narrate that for. For me and for listeners.

B (71:19)

Sarah, you should start.

C (71:20)

And then, I mean, I think it's one of these things where it makes so much sense, and I am, like, fully supportive of there being IGs and GAO and congressional oversight. Like, it all makes a ton of sense, and it comes down to the execution and the implementation. And we have all seen. I have, like, lived through experiences, and you've read about experiences where they just kind of get it wrong. And it's so easy to get it wrong, right? Because in particular, when we're conditioned to say, okay, the way the government's supposed to operate is fully documented, fully transparent, fully fair in everything it does, it means that you have to do all of the things that we had the luxury of sort of being thoughtful about at the outset, which is to say, write everything down and then do it exactly that way. And if you don't, there's a million threads to pull on. And fundamentally, like, IGs get congressional appropriations and they have to deliver work product. And so there's a little bit of. There's a million threads for them to pull up.

A (72:21)

One thing I'm hearing you say, there is just. The IG is not judged on whether you guys get the money out the door. The IG is judged on, did they nickel and dime you in the appropriate ways?

C (72:31)

That's right. Like, they're. They have an incentive to have a big headline. You know, we try to manage headline risk. Like, actually, them getting a headline is, like, kind of a good thing because it highlights their good work in rooting out something that was wrong. And again, like, I don't have a solution for that, for that tension. But I do think that one of the ways in which, like, this has all gotten really unhelpful in the sort of typical government experience is we have so much fear of oversight at every level that it doesn't become, you know, of course, at the most senior level, the people are sort of communicating directly with the ignorance. But, like, having a constructive relationship with your overseers is a really important thing that I think lots of programs don't ever experience or try. I think we tried to do that to some extent. And it makes all the difference in the world because you then you at least start to love the playing field in terms of information asymmetry problem that you start with because they just don't know all the sort of context for the program that you're operating. I don't know, I could talk for a long time about that, about oversight risk. But I guess the last thing I'll say is like, how we managed. It was like we tried to be proactive and collaborative and certainly responsive as like a baseline. And we tried to really anticipate like, what are all the places where in our process design, like this is going to be really important that we write it down, that we write down why we made this choice. And I think we erred on the side of more documentation, I think than certainly than we needed to in a lot of cases. But I think, I mean, so far, and I hope it continues to sort of serve the program well to have to have made those investments and sort of documentation and sort of thinking through the rationale.

B (74:23)

Yeah, yeah, I think, I think there are two pathologies that emerge because of concerns about oversight risk. One is that you design a process to be immune from criticism. And our mantra, what we would always say when we were designing process is the biggest risk is that we don't get this done. You know, if we've successfully implemented the program and a year and a half from now, there's a negative IG report on the process. I can live with that. Now, that doesn't mean we're not going to engage proactively and have documentation and all that. But that is a risk trade off I'm willing to take. If we're sitting here a few years from now and fabs are being built and chips are being produced, that is kind of number one foundational. And then the second beyond process is kind of a pathology or paralysis around risk of bad outcomes. Right? You do one deal that goes poorly and that ends up driving a narrative about the program, headline risk, congressional oversight, etc. And there again you want to have all the analytical rigor you have deal by deal. But we thought as much about risk of omission is risk of commission. And we thought about risk at the portfolio level, not just the deal level.

A (75:31)

You guys had this portfolio of companies and you weren't expecting that every single investment would be a massive success. That was not the metric internally you guys had.

D (75:40)

I mean, inside a government, obviously you always hear about the Solyndra risk, right? The Solyndra risk is something goes really sideways, upside down, if you will. And I don't know enough about Solyndra. I'm sure there was were errors in underwriting and decision making. But we had a discussion very early on when we were in the front end of doing our funding opportunity about the Solyndra risk.

A (76:07)

And just before you finish, I thought just for listeners, Solyndra was this half a billion dollar Department of Energy grant under the Obama administration. Solyndra, the solar panel company, went bankrupt shortly after the grant was given.

D (76:18)

Exactly. And there's a knee jerk reaction in government that is like we don't want another Solyndra. And I think that is the very wrong way to frame things. It's not about eliminating risk. If we're eliminating risk from the portfolio and we're not doing things that have no risk of failure, then we're not doing anything that the private market won't do themselves. So we need to take educators, we need to do our work, we need to do good underwriting and good analysis. But ultimately, and we had this robust debate with, with Secretary Raimondo about not everything we do is going to be successful. And that's okay. We need to make sure like the world understands that like we're trying to incent something and not everything's going to be successful. But it's okay if some of our investments don't go as well as others, if at the end of the day we're accomplishing the ultimate goal. And so in Leading Edge logic, we gave awards to all three. Samsung, intel and tsmc. I hope all three are wildly successful. What we said up front is what we really need is we need at least two ecosystems in this country to be successful at Leading Edge. The market's going to sort that out and hopefully all three will be. But at least we know we're on target for getting that 20% that I mentioned before. This risk of omission and commission is also in my mind super critical. We all participated in a Harvard Business School case study on chips, the focus of which was on risk taking and you know, risk of omission versus commission, risk of doing something and having a failure and the process is not, you know, totally buttoned up or risk of not getting stuff done. And it's very clear, at least in my mind, that government is totally torqued to the risk of the cylinders and the failures and documenting everything without really thought about or not enough thought, I would say to that risk of actually not getting stuff done and getting the policy accomplished. And I think there's lots of things in here about IGs and oversight. There's lots about how like culturally you set up a team. There's a lot about how you like manage what good looks like and the outcome. So there's a lot here. But I think it's an important topic for factory settings and what we're going to talk about over the next year.

A (78:39)

Sarah, will you tell me a little bit about some of the challenges with the IGs?

C (78:46)

We, I would say by all measures were wildly successful at hiring very, very quickly. I think our average time to hire was something like 67 days when we looked at sort of the end of 2023 after the sort of really big surge that we did.

D (79:03)

And do you know Sarah, what the jet regularly.

C (79:06)

Well, the benchmark for the government is 80 days and I don't know that it is that agencies have ever actually achieved that. It's more like 101 or 102 days. The last time I looked at the OPM dashboard and so we were decidedly better than that and hired more people than we expected to be able to in that first sort of nine month sprint. And you know, the, the whole time I'm there, I am anticipating when the first call from the IG that's a substantive engagement is going to come and we get the first one. And it's about hiring, which of course, you know, makes sense. They also need to staff up by the way with their. And they don't have the sort of machine that we've set up to build a team that's going to look into our work over time. So you know, they focus on hiring. Hiring is always a big risk. It's always one of those things that like everybody knows like, like you could get a bunch of money from the Congress and if you don't have the people in place to deliver the program that you're going to be behind. So we felt like pretty confident going into that and handed over all the data, super responsive answer all their questions, et cetera. And we get the draft report back and the headline is CHIP succeeded in hiring all the people that they wanted to hire or they exceeded their hiring goals, but they did not conduct or develop a comprehensive workforce plan.

A (80:30)

What's a comprehensive workforce plan?

C (80:32)

Well, exactly. First of all, like I don't even know. I've been in government for a long time.

B (80:37)

I was like, Sarah, it's in my head. I swear to God. The comprehensive plan is in my brain.

C (80:42)

Exactly. I like. So I look, this thing is like a recommendation from OPM that you do this sort of like multi stage planning Document which, like, yes, of course, like, sure, that makes sense in some abstract.

A (80:53)

What did they want you to have.

C (80:54)

Developed, like, literally at the number of positions? I think it's more like in government, HR language. So, like, what are the functions and the capabilities that you need and then why and how many people in each thing and over what time? And I'm sure there's all kinds of stuff about, you know, estimating attrition and whatever to like, come up with some very sort of formulaic answer, like the right answer for what. You should then go higher for exact.

A (81:20)

Numbers for different functions.

C (81:22)

And listen, in my experience, I have actually never conducted one of these things. I think usually they are conducted at the agency level, like they are for an entire agency. And so they were like, kind of applying this standard to us. I'm sure there's also, like, history with the work that they had already done to look at NIST and Commerce in the past. Like, they're sort of bringing some of that baggage to it. But that. That is the headline. And takes up like two thirds more real estate than the fact that we actually succeeded.

A (81:50)

Hired ahead of schedule.

C (81:52)

Absolutely absurd. Yes, yes. We had hired ahead of schedule, hired faster than the benchmark, had a highly efficient and dynamic process.

B (82:03)

Oh, and. And not to mention had built an unbelievable team. I mean, like, we had such. That's not even.

C (82:09)

Like, they didn't.

B (82:10)

Yeah, they didn't even get into that. But that's. They don't.

A (82:12)

They don't score you on that.

D (82:14)

Yeah.

A (82:14)

I was like.

B (82:14)

And the mindset that one has to, like, provide that feedback compared to the experience of building the team and what we knew it would take to be successful, it's like, there's such a delta between that kind of process. Like, what it took to build the team was. I started. There were some notions about what the. Org would look like. I kind of thought I needed to think about it. The secretary said, you have two weeks. So I met with her two weeks later. I laid out a vision for what the organization would look like. I'd say we're going to an investment team, a strategy team, ops, risk, legal, external affairs. And then it was like, we need to find all star people to lead these teams. Todd was going to lead investments, Sarah was going to lead ops and be chief of staff, et cetera, et cetera, et cetera. Find those people. And then, you know, when Todd took over investments, was like, todd, what do you need? And Todd was like, all right, I'm going to build my team. Right? And it was like, it was just that level of urgency reporting weekly to the secretary on how the team was being built. The secretary designating her most senior person within the secretary's office at CHIPS to work full time on. On supporting recruitment and hiring. And it was just an incredibly dynamic process that brought an unbelievable group of people.

D (83:26)

Her message was not, we want. I want to hold you accountable. It was where I can be helped.

B (83:30)

It was. It was, what can I do? Because she knew. She, like, she's very charming, you know, so it's like, you get her in the room with someone and it's like, she would always close and that. That's how we built the team, you know.

A (83:40)

Gotta be very helpful for hiring to have the secretary of commerce pick up the phone and say, we. We could really use you.

B (83:46)

It is.

A (83:47)

It is very helpful.

C (83:48)

I do think at that point, Mike, that, like, the IG asked us, how did you decide if you didn't work for Plan? Like, how did you. Where are your planning documents? How do you decide? And I said, well, no, what we did is we got the leaders of each of the organizations in and we said, run and find the best people to do the job that you need to do. And, like, that could delete. You could, like, trust that the humans that you put in the seat had the right experience to sort of design this. Obviously, we're all, like, communicating about what, you know, how we're proceeding and the kinds of roles we're targeting. But, like, that almost like, struck them as foreign. It seemed like they noted it in the report. Like, they said they just hired the senior people and told them to go find, like, hire their teams.

A (84:33)

Strange.

C (84:33)

It almost sounds like strange. Yeah.

A (84:36)

Before we close, I do want to hear a little bit more about how you guys did hire, because my understanding, and this was in the. The public reporting, it's not just you guys telling me you guys hired a lot of top talent. You guys hired from Wall Street. You had people who had the capability to execute these deals, as you've talked about. And that, to put it lightly, is not the usual caliber of person who goes into government. And I mean that with no disrespect to civil servants, but you guys hire some talent that usually you cannot get into the federal government. I want to hear how.

D (85:05)

And I would say up front, like, I don't know that that's how I put it. Santi. I feel like we can attract these people to government. It's not about that. We can't attract them. I don't. I just don't think we have really tried that much.

C (85:17)

Tried. Yeah. I mean, I think we just important to know, in addition to what my said earlier about having ample administrative funding, which meant like, and no real FTE cap, like we could just. We could hire the number of people that we needed to do the jobs we needed them to do. In the CHIPS act itself, we had an authority to hire up to 25 people with higher salaries. So salaries in some cases more than ses really indexed to the vice president's salary, which was, I think, more than SES senior executive service roles. So at the size, sort of highest ends of most agencies, which helps. It's certainly nothing like people are making on Wall street or elsewhere, but it is significantly more than most civil servants make. That was only 25 slots, though. We also had asked for direct hire authority and accepted service authority from opm, which we'll do some writing about what those things are. But essentially they sort of give you an easier, faster process to get folks in the door and one that gives you more discretion in making your elections in both cases in different ways.

A (86:25)

One thing that I think is just to put in plain English for folks that I think is just worth repeating and repeating over and over on this podcast, is most people in the federal government can't identify a really talented person and say, okay, we'd like to hire you. Like, you're not allowed to do that.

C (86:39)

That's correct. I don't think in my 16 years in government, really, I'd. Maybe in D.C. government is actually easier my four years there. But in the federal government, I don't think I have ever had the benefit of having an accepted service slot. And it just, it changes the game or direct hire, probably. So it's an enormous advantage. It has a lot to do with our average time to hire, of course, because we relied on those slots in the first instance, I think for nearly all of, if not all of our positions. And then on the recruiting side, I would say, like Todd should definitely talk about the recruiting private sector folks to government. And it is, I think their experience once they got there is like, it is a real sort of learning curve for everybody. But I think that having that the sort of diversity of people. I know I'm going a little different direction here, but like both people who are not typically going to show up in government and also people, people who've spent some time there was just really magical and hugely important to our success and our credibility as we navigated the program.

B (87:42)

Yeah.

D (87:43)

And I think that we early on, as Sarah said and Mike said, Earlier about the structure, like figuring out what the structure was and having a vision of what we wanted the organization to look like. In particular, being able to face off against these very large, very sophisticated companies that were used to dealing with government in a certain way through their government affairs and knowing that that's not what we wanted. We wanted a different relationship. We needed different types of people. And then to make a judgment that we were going to have like these pods, these small deal teams similar to consulting firms or investment banks or investment firms that would be like the intel team or the TSMC team or the Samsung team, then drove the kind of people you needed. We need a senior person that could go toe to toe, that had the experience and the gray hair or whatever and could go stand side by side with a CEO of Intel. And we needed some mid level and younger people who really were strong analytically and strategically and financially. And what surprised me to my comment earlier, there are a ton of people out there, there who have a strong desire to work in government and do something important and to give back and really believe in the mission. We did get a number of more like older, close to or at retirement stage people, which, you know, 30 years at Goldman Sachs or you know, Linnell who worked in the industry for, for decades and was, was retired. And we got a number of them to come back out of retirement, which was amazing. And I think the most impressive thing was to get these young people and mid level people who were climbing the ladder in the private sector and were making real money and had the potential to make real money to take a risk and come into government. Those people were just motivated by the mission. They knew they liked the mission and they wanted to do something where they could use their skills. So I was surprised by the number of people that we did get. And the way we did it was we, we figured out what we were looking for. We designed a job description and then we called, I called anybody in the investment business that I knew and said, hey, who do you know on your teams that might have an interest in working in government? And we put it out on LinkedIn and we did whatever we could. And actually we got many, many applications from all different places and got an incredible team to join us that way. And as we said, we used the secretary to help the close. And you know, if you now look at where most of those people are, the vast, vast majority of them are now back in the private sector doing really cool things. Their career trajectories have taken off in different ways. They all are going to look back on this period of time as like unique, informative and transformational for them. And they're back. And so if more people would feel like, I can go do something in government for a couple years, a handful of years, whatever, and then go back into the private sector, I just think that would create more dynamism for us.

C (90:42)

It's also self reinforcing. Just the one thing, like Todd, like you and Sarah being recruiters and then your senior people being recruiters, like that then sends a signal to these younger people, like, you have real serious people who have experience that is relevant to me. And I imagine that that has to have played a real role there.

B (91:02)

Hugely important. I mean, Todd and I went on odd lots in like April of 23, and we probably had five or 10 people who listened to that and thought, oh wait, that sounds kind of cool, and ended up working on our team, you know, and. But I do want to say a couple things about this. One is it would be a mistake to just say, oh, we brought in this private sector talent. And that was the magic. I mean, truly. We also attracted unbelievable government talent.

C (91:26)

That's right.

B (91:27)

And one of the really cool things was watching the kind of mutual respect emerge as kind of stereotypes were broken down on both sides and people learned to work together and like really drive outcomes. And just folks, you know, from the league, I mean, you know, government lawyers, you know, from talking to Taiwan at 11pm every night, you know, for a couple of weeks to get a deal done. I mean, that's like, you know, and then being up in the morning to. To turn the docks, you know, it's like that is the. It was just incredibly arduous and hardworking. And then to get everyone to do that, it's like, why are people working so hard? And it is extraordinary what people would do if they feel passionate about the mission, if they feel connected to the mission. And I think that was a huge piece of the magic, right? People felt valued, people felt like we were doing something important. One of the really hard things about procedural barriers, whether that's an internal process design or an external barrier, you feel it immediately in the team's morale because, right, the team's there saying, we're trying to do something important. Can't you solve this for me? Like, I'm trying to get this deal done. Can't we break through this? But I think that message of like, yeah, we can produce extraordinary institutions in government and hire and attract and retain great people in government is really, really important.

A (92:44)

I mean, there's a Huge amount of lessons that you guys, you know, generated here and that in. In factory settings you're talking about over the course of the year. But I think this one is just a good one to end on, which is, Todd, like you said, it's not just that you guys had fantastic authorities to hire over and above what the vast majority of federal government functions have. What I'm hearing all of you say, especially Todd, is you guys really tried to use those authorities. I mean, you spent relatives and many other folks an inordinate amount of time actively hiring and trying to get even more senior politicals up the chain engaged in the hiring. Not just to the private sector, obviously, but that to me is. Is a useful note for folks in the future that it's not just that you really want to push Congress or to push politicals to give you hiring authority to make these discretionary calls. But then you have to go and use it.

B (93:34)

You have to use it and you have to. And then once you build the team, you need to focus on culture and retention and keeping people there and connected.

C (93:43)

To the mission and listening to them.

D (93:47)

That's another topic to talk about. But, you know, Mike used to say, and I really like this phrase, we need to view the bureaucracy as our dance partner. And I think it's important because it's not that we need legislation or everything needs to fundamentally change. Like, we need to work with some of the rules that are in place as well. Like there's things that can happen to happen tomorrow without any changes in government. And, you know, that's a lot of what we did too. Like, we just found good people within contracting and good people within hiring. And we figured out ways to take days out of onboarding. People like Sarah did a lot of this. Like all of those things, there are a million different things, but they all add up. And it led to, I mean, the reason we're doing factory settings. Mike also likes to tell the story. We were having dinner at his house one night. He asked me whether did I think we were going to get this done. And my comment to him was yes, but nothing about it seems repeatable or what was the word? What was it?

B (94:43)

Sustainable.

D (94:43)

Nothing about it seems repeatable or sustainable. And our goal is to try to impart some of those lessons so that it can be repeatable. And it's not just a bunch of people just trying to do 24, 7 for two and a half years to just break through everything every day. Rather, there's some structure around it that it is repeatable and transformational. And impactful over time.

A (95:08)

This is a good place to wrap. Mike, Todd, Sarah, thank you guys so much for the work you did at CHIPS and for the time you've given me today.

B (95:16)

Thank you. Sante, it was great to be here.

C (95:17)

Thanks so. Much, Race.