when drilling in most metals, drill bits drill 'oversize'. that is, the hole ends up larger than the diameter of the drill bit doing the drilling.
that .120" bit will make a hole that is .121"-.122" in diameter. the hole will also not be perfectly round. this is due to drilling the hole partially in hard barrel steel and partially in the softer steel of the front sight base.
the .1245 bit will act more like a reamer than a drill bit, as it is only removing a very small amount of metal from the hole.
ideally, i would have written the instructions so that the last machining operation was to use a .125 undersize (.1245" diameter) reamer instead of a drill bit. but, not everyone would go thru the trouble of calling up mcmaster-carr or msc supply and ordering a reamer.