The best thing to do is provide your passport and ask why it is needed. You'll get the most accurate answer from the company itself.
Your passport is likely being used as proof of citizenship (regardless of whether you are a citizen or not) but there are many reasons a company may need it - all related to security:
1. In order to give you or renew a security badge. Commonly your citizenship status is recorded as part of the badging process for companies working on sensitive or government-related projects.
2. To comply with internal/client/government record-keeping requirements. If a company is concerned with security, it may ask for additional forms of ID from employees to keep on record. This requirement may be strictly internal, or may be because of government or client requirements.
3. In preparation for a background check. Your passport is an exceptionally reliable form of identification. Some background-checking agencies prefer a passport number to other forms of ID to use as a reference when looking at less reliable records.
4. To comply with government immigration reporting requirements. If you are not a citizen of the country you are working in, your company likely needs to report your work activities to comply with immigration rules. This reporting may include your passport information.