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The New Zealand Herald yesterday reported that the Blues looked most likely to sign the All Black centre, with the Chiefs also in the hunt for his signature.
But Williams is yet to put pen to paper and commit to the New Zealand Rugby Union. He has made a verbal agreement to stay in New Zealand for a further 12 months, but that wouldn't stop a defection to Sydney.
It is believed that the Waratahs approached the Williams camp about a deal last month. They were told that he was contracted for next year, but the Crusaders player has failed to sign with a New Zealand Super Rugby side.
"We have still got a spot or two in our squad," Waratahs chief executive Jason Allen told the Sydney Morning Herald.
"If the question is would we ever want him in our squad if we could fulfil any financial demands - of course, without a doubt.
"We would be thrilled, he would be a real asset here. I think we have a pretty strong programme to support him.'"
Four weeks ago, Williams claimed he was committed to staying in New Zealand for another 12 months.
"It's due to the fact that the amount of support that I've got back in New Zealand has been pretty humbling. At this stage it's just one more year but things could change," he said.
At the time he said he hoped to make a decision on his franchise future before the World Cup.
Williams was the leading player for offloads during the Super Rugby season. He was second to Quade Cooper for linebreak assists, and was 13th overall for run metres.
However, he has struggled to break up the All Black midfield pairing of Conrad Smith and Ma'a Nonu, with coach Graham Henry reluctant to split the successful duo.
It is known that Williams had been shaken by the earthquakes that struck Christchurch earlier this year. His mother lives in Auckland, but Williams had a taste for the Sydney lifestyle during his time at the Bulldogs in the NRL.
If Williams was to sign with the Blues, he could form a potentially-devastating partnership with Nonu in a side favourites to take out the New Zealand conference. A move to the Chiefs would give Williams the opportunity to continue working alongside Wayne Smith, who will join the franchise in 2012 as technical adviser.
The Sydney Morning Herald suggests that Williams would also consider lining up alongside close friend Quade Cooper at the Queensland Reds. The players share the same agent, Khoder Nasser.
Nasser would only comment: "We have given the NZRU an agreement that Sonny will be there next year."