The NSW government will be forced to pay contractors more for major transport projects due to a saturated market and construction companies becoming more selective about what they bid for.

A confidential budget review of Sydney's 30-kilometre metro rail line under the central city cited "market pressure" as one of the main reasons for a forecast $4.3 billion blowout in the cost to complete the project by 2024. The project is now forecast to cost up to $16.8 billion, up from $12.5 billion in the final business case five years ago.

Work is under way on an interchange for WestConnex at Rozelle in Sydney's inner west. Credit:Steven Siewert

Jason Teh, chief investment officer at funds manager Vertium Asset Management, said large construction companies were "pulling back" from work after getting burnt by unknown factors such as contaminated soil or problems tunnelling.

"The price will have to go up for these construction projects. If you get burnt on something you probably will pull back," he said.