So, as a contracter:

• Would you rather pick someone who promises they are right about the scope (.. lying..) and pay their risk premium
  
• .. contract them, negotiate away the risk premium, only to see skilled resources shift to more profitable projects (once you are firmly in their grip)
• .. contract them, and see them default
  
• .. Or - pick someone who is honest about this fact, but promises to deliver runnable software monthly with what you require
  

As a contractee:

• Would you sign up for a contract which you know is bad
• Or pick a better client which you can have a thriving business relation with?
  

Just recently, I was approached by a startup company who needed a software built, and I was very honest about this fact. They went with another supplier. It stung a bit, but, just recently I heard that they have trouble with their funding. So in the end am glad I didn't waste more time.

Sources and further readings:

• Scott Ambler, Dr Dobbs Journal, "Is fixed-priced software unethical"
• The Standish Group's chaos report
• "Stop estimating" - David Anderson
• Software Cost Estimation with Cocomo II, Addison-Wesly 2000