True, but as a condition of getting the job offer the FSO at the contractor
As I remember, FSO stands for Foreign Service Office, not Department Of Defense. Was this a Department Of State contract position?
required me to cut up my British passport so that it couldn't be used and then held it in my security file as proof that I could no longer travel on it.
That is a company requirement, not a DoD one. I'm pretty sure its illegal. And I've never heard of it occurring at a company working a DoD contract in the US. But thats not to say it never does. Companies do very funny things these days. I remember long ago reading about some middle eastern countries imported workers. Upon entry to the country to work they took their passports and kept them at the company. The companies later refuse to return the passports so the workers become essentially company captives. This requirement smacks of that same approach and I don't think its legal.
This is not what I understood from my research. I renewed my UK passport after I got US citizenship which could be considered foreign preference, but it would have been mitigated by my not understanding the clearance issues and by surrendering my UK passport to the FSO.
I've known & worked with many contractors with foreign passports. Last year one of them had his house burn to the ground. His family was back home visiting and he was at work. He was left with only his car, the money in his pocket, his credit cards and the clothes he was wearing. Among his papers burnt to ashes was his foreign passport. He had only a small amount of trouble getting a new one issued. The regional security office assisted him in getting a replacement. If it was a DoD security requirement for him not to have a foreign passport, they sure would not have helped him. Since he was planning to leave the country to visit his family for hollidays, they did require him to deposit his passport at the foreign embassy so his travels would be tracked via his US passport. In no case did they suggest destruction of his passport or that he renounce his foreign citizenship.
I would also have been required to report all foreign travel to the FSO.
Typically you notify a company security officer, not DoD, of your foreign travel plans and they brief you about current situations in those areas, situations you should be aware of and suggest to you how to act to not draw attention to yourself. Not a big deal, takes about 10 minutes and is not intrusive.
The briefing I was given stated that to get a clearance I would not be able to exercise any rights or privileges of my British citizenship. I wouldn't be giving them up exactly, but promising not to use them.
As a foreign national in the US, what rights or privileges would these be? Not to use the British Embassy? Avoid paying taxes, social security contributions,...? Foreign nationals in the US pretty much have the same rights & privileges as US citizens. The only thing I can currently think of is a foreign pension. But that would be declaired on your US tax return & taxed.
As a dual citizen I would not have got an interim clearance,
Really, this is news to me. I'll have to call my shops security officer and ask.
but I would have been able to work on non-classified things while my SF86 was being processed. I was told that it would take between 6 and 12 months for me to have an interview.
Typical approach in the industry is to have you work on non-classified or sanitized items, in a segregated area.
As you realise, the company does not "pass" you. They have no real input into the decision. They cannot review your online application answers. They don't handle youre SF86 at all. They only give you the account one time use password to start the time limited application. In fact, any time they ask how your application is going the only answer they get is "its in process".
if I'd ever been asked about willingness to renounce British citizenship
You will never be asked. You've already swarn allegiance to the US when you accepted US citizenship.
In the end I was not willing to take a contract job that depended on a clearance that I think I have a 50/50 chance of getting.
I think you had a much better than 50/50 chance, probably like 80% chance. After all you've already been working in the US for an extended period.
Also put yourself in my position. If you are a natural born US citizen and moved to the UK and took UK citizenship, would you feel comfortable cutting up your US passport to get a UK defence job?
No. I'd pass on working for this company and find another company placing contractors at the same client site. Rairly does a client use only one job shop to fill contractor positions.
I think you conclusion, based on financial, not clearance considerations is the correct one for you.