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.

With recent versions of Android Studio, tested with 1.3, to use local .AAR file and not one fetched from maven/jcenter repository, just go to File > New > New module and choose Import .JAR/.AAR Package.

What you will end up with is a new module in your project that contains very simple build.gradle file that looks more or less like this:

configurations.create("default")artifacts.add("default", file('this-is-yours-package-in-aar-format.aar'))

Of course, other projects have to reference this new module with regular compile project directive. So in a project that uses this new module which is simple a local .aar file has this in it's build.gradle

[...]dependencies {    compile fileTree(dir: 'libs', include: ['*.jar'])    testCompile 'junit:junit:4.12'    compile 'com.android.support:appcompat-v7:23.1.0'    compile 'com.android.support:design:23.1.0'    [...]    compile project(':name-of-module-created-via-new-module-option-described-above')}[...]

In Android Studio 3.1.3 with gradle 3.0.1.
Simply adding implementation fileTree(dir: 'libs', include: ['*.aar']) or implementation files('libs/app-release.aar') without any other flatdir works.