Major contractors muscling-in on smaller contracts are proving to be a major headache for small-and-medium-sized enterprises (SMEs) in the construction sector, according to a new report.

A third of firms surveyed for a new report by pre-qualification register Constructionline said competition from larger companies is the biggest challenge that local contractors face during tender competitions.

Late payment still blights the industry, with 56% of the 1,300 firms quizzed saying invoices now took even longer to settle than in previous years.

A third also said that winning work and finding opportunities were the biggest obstacles to their future success.

On a more positive note, 74% had not seen any of their projects cancelled in the past three months, while 60% have secured most of their recent project wins from the private sector.

When acting as sub-contractors, 56% had seen payment times lengthen in the past 12 months, with 34% having been asked for rebates, and 41% seeing increased retention periods.

But of those acting as principal contractors, only 40% had seen payment times increase, 26% asked for rebates, and 27% suffered longer retention periods.

Constructionline director Philip Prince said: "SMEs are the backbone of UK construction so their survival is critical to the industry's long term health.

"Stricter rules on payment times, especially to protect subcontractors, would give a huge helping hand to the thousands of firms for whom cash is king."