I'm sorry, but this process would not work.

You are basically filtering for presentation ability. But 3/4 of programmers are introverts, and giving presentations is simply not part of their job. You're therefore selecting for the wrong skills until the contract step.

At the contract step you create another problem. Good programmers who want to be employees probably already have jobs and are somewhat risk adverse. That kind of person won't find the option of a short-term contract with no promises at all enticing.

Remember, as bad as the economy is, the economy for programmers right now is pretty good. And as annoying as the coding interviews may be, really good candidates don't have too much trouble with them.