A New South Wales corruption inquiry has heard that a water company connected to Senator Arthur Sinodinos refused to disclose details of its ballooning costs.

The Independent Commission Against Corruption (ICAC) is investigating allegations Australian Water Holdings (AWH) falsely charged Sydney Water for expenses and used the money for executive salaries and donations to the Liberal Party.

Today retired Sydney Water official Ronald Quill was questioned about a deal signed with AWH to roll out water infrastructure.

Mr Quill told the hearing he became concerned when AWH costs were around 50 per cent over budget, particularly because no work was being done.

"It became a concern of yours?" counsel assisting the ICAC Geoffrey Watson asked.

"Absolutely," Mr Quill responded.

"The mere fact that there was no work to do and costs were escalating meant we weren't getting value for money.

"They stonewalled us. They refused to provide any information whatsoever."

The inquiry heard then that from July 2007 to May 2008 AWH was over budget by around $6.5 million.

Senator Sinodinos joined the AWH board in October 2008.

He became chairman in 2010 but left in 2011 to take up his appointment to the Senate.

Senator Sinodinos stood down earlier this week as Assistant Treasurer while the ICAC inquiry is completed, but has indicated he is confident of being cleared of wrongdoing.

Mr Quill told today's hearing today that when the publicly owned Sydney Water threatened to call for tenders for the infrastructure work that was not done, AWH threatened to get a court injunction to stop the tender process.

He said AWH board member Nick Di Girolamo, who was also a Liberal Party fundraiser, did not disclose the details of his salary of over $1 million to Sydney Water.

Mr Quill agreed when it was put to him by Mr Watson that Sydney Water was not after "The Colonel's secret herbs and spices", but merely a breakdown of costs.

"Obviously I thought they were hiding something," Mr Quill said

The inquiry also heard an anonymous complaint was made against Mr Quill and his Sydney Water boss Kerry Schott to try to destroy them.

The complaint was that Mr Quill was a "corrupt" person.

The ICAC heard a previous witness, AWH executive William Macgregor-Fraser, will be recalled because he has found documents in his garage that he was previously unable to produce for the inquiry.

Senator Sinodinos is expected to give evidence over the next fortnight.