About packages update, I think if you want to add them into your build, you need to compile them before you start building iso, please refer to https://github.com/vyos/vyos-build/tree/crux#building-subpackages-inside-docker.
But here if your purpose is to build 1.2.0 release ISO, it seems not suitable to do this since
git submodule update --init --recursive && git submodule update --remote only get the latest commit for submodule rather than the commit on the release point. For certain modules like vyatta-cfg, you can switch to crux branch, but for certain module like frr, there is no this kind of branch to switch.
My experience is not to get submodules by self to build 1.2.0 release. As you know, building script will fetch vyos related package on http://dev.packages.vyos.net/repositories/crux/vyos/ for crux release, I checked the latest update date for those package, most of them are updated on 2019.1.27 which is one day before 1.2.0 LTS was announced. So I think these are official release package we can use directly, but it’s just my assumption, hope there is official announcement about this part.