Adding local .aar files to my gradle build

You put your flatDir block in the wrong repostories block. The repositories block inside buildscript tells Gradle where to find the Android-Gradle plugin, but not the rest of the dependencies. You need to have another top-level repositories block like this:

repositories {
    mavenCentral()
    flatDir {
        dirs 'aars'
    }
}

I tested this and it works okay on my setup.