[dfc]

The sentence is:

"There are some sharp people working the Federal side, but it really is awful."

The "it" section is after the comma and not part of its own sentence. Maybe you could (I wouldn't) make that inference if it read:

"There are some sharp people working the Federal side. But it really is awful."

[enoch_r]

It's similar to the sentence "Bob got a new girlfriend, but she is awful." "It" refers to "the Federal side."

[dfc]

Federal side at OP's company (which OP is a member of) or in general?