The federal government, defense in particular, has been moving to awarding large omnibus-style "contract vehicles" to a set of companies (like a first gate check), then out of those contract vehicles awarding Firm Fixed-Price contracts.
It helps stop the government from telling the contractor to do something new half-way through the contract, and for the contractor to then bump billing without new competition (the race condition leading to a 400% expected cost in a jet engine for example...). Instead, the contract terms are battled over in the beginning to line out exactly what the contractor will deliver, and up to how much they can bill for it (the government, and public, always appreciate it if you can find a way to not spend all the money).
If the government decides, part way through the contract period, that it wishes the contractor to do something extra, a new supplemental contract is drawn up and new extra funding requested and maybe approved. This supplement generally has to be published I think, so other contractors and watch-dogs can call foul if the extra work is significant enough that it should be re-competed.
The risk is that if the terms aren't fantastic and the goal of the contract complex, that you can end up in a quagmire of supplemental contract nightmares.
Some further reading on the benefits and risks of the method:
0 - memo with recommendations of FFP as a more prominent consideration in new contracts to reduce potential costs to the government.
1 - presser on Office of Management and Budgets' directives to retool contract staffs toward FFP.
2 - Discussion in WSJ of why it's not always the best idea.
3 - best practices in the contract writing process.
