Pass in `--local` when doing `gem install` for local gems.

Rakefile

@@ -40,10 +40,10 @@ task :install => :gem do
   version = File.read("RAILS_VERSION").strip
   (PROJECTS - ["railties"]).each do |project|
     puts "INSTALLING #{project}"
-    system("gem install #{project}/pkg/#{project}-#{version}.gem --no-ri --no-rdoc")
+    system("gem install #{project}/pkg/#{project}-#{version}.gem --local --no-ri --no-rdoc")
   end
-  system("gem install railties/pkg/railties-#{version}.gem --no-ri --no-rdoc")
-  system("gem install pkg/rails-#{version}.gem --no-ri --no-rdoc")
+  system("gem install railties/pkg/railties-#{version}.gem --local --no-ri --no-rdoc")
+  system("gem install pkg/rails-#{version}.gem --local --no-ri --no-rdoc")
 end
 
 desc "Generate documentation for the Rails framework"

install.rb

@@ -2,10 +2,10 @@
 
 %w( activesupport activemodel activerecord actionpack actionmailer railties ).each do |framework|
   puts "Installing #{framework}..."
-  `cd #{framework} && gem build #{framework}.gemspec && gem install #{framework}-#{version}.gem --no-ri --no-rdoc && rm #{framework}-#{version}.gem`
+  `cd #{framework} && gem build #{framework}.gemspec && gem install #{framework}-#{version}.gem --local --no-ri --no-rdoc && rm #{framework}-#{version}.gem`
 end
 
 puts "Installing Rails..."
 `gem build rails.gemspec`
-`gem install rails-#{version}.gem --no-ri --no-rdoc `
+`gem install rails-#{version}.gem --local --no-ri --no-rdoc `
 `rm rails-#{version}.gem`