[lordCarbonFiber]

The problem with all "contract to hire" schemes is you essentially set yourself up for failure on the labor marketplace. Unless you're offering some other compensation, why would any talented candidate take your contract to offer job over the firm next door that's hiring them flat out (assuming both of you pay market rates). Not to mention you shut yourself out of any nonlocal market.

Especially in the US, asking an employee to give up even more rights is a hard bargain. You run the risk of naturally selecting for employees that can't get hired anywhere else (which tend to either worse, or at the very least require more investment; something you're not willing to do or why have you made them use their time to do a take home and start this contract to hire business)

In my appraisal, more firms just need to recognize that they don't need half the technical skill they think they do. Building a CRUD back end or a mobile app doesn't take deep algorithmic horse power and the engineers you've managed to retain to administer the interview probably aren't qualified to do so anyway.